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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2005
 or o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File Number: 000-25955 Waste Services, Inc. (Successor registrant of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)(Exact name of registrant as specified in its charter) Delaware
    
    01-0780204(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 1122 International Blvd., Suite 601, Burlington, Ontario, Canada L7L 6Z8
(Address of principal executive offices and zip code) (905) 319-1237(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at
July 29, 2005 was 99,730,201 (assuming exchange of all exchangeable shares not held by Waste
Services, Inc.).




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TABLE OF CONTENTS PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004
    
    
    2Unaudited Condensed Consolidated Statements of Operations for the three and six months ended
June 30, 2005
    
    
    3Unaudited Condensed Consolidated Statement of Shareholders Equity for the six months ended
June 30, 2005
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2005 and 2004
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    39PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3. Defaults upon Senior Securities
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    40Signatures
    
    
    41Section 302 Chief Executive Officer CertificationSection 302 Chief Financial Officer CertificationSection 906 CEO & CFO Certification
  1




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PART I. FINANCIAL INFORMATION 
 Item 1.Financial Statements WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.) 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 June 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,890
    
    
    $
    8,507Accounts receivable (net of allowance for doubtful accounts
of $951 and $1,264 as of June 30, 2005 and December 31, 2004, respectively)
    
    
    46,945
    
    
    
    47,856Prepaid expenses and other current assets
    
    
    8,752
    
    
    
    10,940Total current assets
    
    
    60,587
    
    
    
    67,303Property and equipment, net
    
    
    124,789
    
    
    
    130,467Landfill sites, net
    
    
    169,734
    
    
    
    169,616Goodwill and other intangible assets, net
    
    
    331,628
    
    
    
    327,756Other assets
    
    
    23,269
    
    
    
    25,441Total assets
    
    $
    710,007
    
    
    $
    720,583LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    23,744
    
    
    $
    25,949Accrued expenses and other current liabilities
    
    
    44,400
    
    
    
    42,533Short-term financing and current portion of long-term debt
    
    
    1,172
    
    
    
    1,166Total current liabilities
    
    
    69,316
    
    
    
    69,648Long-term debt
    
    
    275,627
    
    
    
    276,214Accrued closure, post-closure and other obligations
    
    
    15,815
    
    
    
    10,974Cumulative mandatorily redeemable Preferred Stock (net of
discount of $5,543 and $8,426 as ofJune 30, 2005 and
December 31, 2004, respectively)
    
    
    74,456
    
    
    
    64,971Total liabilities
    
    
    435,214
    
    
    
    421,807Commitments and contingenciesShareholders equity:Common stock $0.01 par value; 500,000,000 shares authorized;
93,237,607 and 90,358,196 shares issued and outstanding as of
June 30, 2005 and December 31, 2004, respectively
    
    
    933
    
    
    
    904Additional paid-in capital
    
    
    352,757
    
    
    
    345,904Treasury stock at cost; 500,000 shares as of June 30, 2005 and December 31, 2004
    
    
    (1,235
    )
    
    
    (1,235
    )Options, warrants and deferred stock-based compensation
    
    
    29,809
    
    
    
    28,282Accumulated other comprehensive income
    
    
    25,522
    
    
    
    29,133Accumulated deficit
    
    
    (132,993
    )
    
    
    (104,212
    )Total shareholders equity
    
    
    274,793
    
    
    
    298,776Total liabilities and shareholders equity
    
    $
    710,007
    
    
    $
    720,583
 The accompanying notes are an integral part of these condensed consolidated financial statements. 2




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.) 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    95,384
    
    
    $
    72,626
    
    
    $
    184,369
    
    
    $
    122,943Operating and other expenses:Cost of operations (exclusive of depreciation,
depletion and amortization)
    
    
    69,319
    
    
    
    51,444
    
    
    
    133,809
    
    
    
    85,848Selling, general and administrative expense
    
    
    14,679
    
    
    
    12,785
    
    
    
    30,146
    
    
    
    23,111Depreciation, depletion and amortization
    
    
    10,599
    
    
    
    7,809
    
    
    
    20,148
    
    
    
    13,281Foreign exchange gain and other
    
    
    1
    
    
    
    (283
    )
    
    
    (237
    )
    
    
    (373
    )Income from operations
    
    
    786
    
    
    
    871
    
    
    
    503
    
    
    
    1,076Interest expense
    
    
    7,173
    
    
    
    12,266
    
    
    
    13,998
    
    
    
    18,582Changes in fair value of warrants
    
    
    
    
    
    
    421
    
    
    
    
    
    
    
    421Cumulative mandatorily redeemable preferred stock dividends and
amortization of issue costs
    
    
    5,114
    
    
    
    4,290
    
    
    
    9,956
    
    
    
    8,309Loss before income taxes
    
    
    (11,501
    )
    
    
    (16,106
    )
    
    
    (23,451
    )
    
    
    (26,236
    )Income tax provision
    
    
    3,013
    
    
    
    2,509
    
    
    
    5,330
    
    
    
    3,338Loss before cumulative effect of change in accounting principle
    
    
    (14,514
    )
    
    
    (18,615
    )
    
    
    (28,781
    )
    
    
    (29,574
    )Cumulative effect of change in accounting principle, net of provision
for income taxes of $132 for the six months ended
June 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225Net loss
    
    $
    (14,514
    )
    
    $
    (18,615
    )
    
    $
    (28,781
    )
    
    $
    (29,349
    )Basic and diluted loss per share:Basic and
diluted loss per share before cumulative effect of change in accounting principle
    
    $
    (0.15
    )
    
    $
    (0.21
    )
    
    $
    (0.29
    )
    
    $
    (0.37
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss per share  basic and diluted
    
    $
    (0.15
    )
    
    $
    (0.21
    )
    
    $
    (0.29
    )
    
    $
    (0.37
    )Weighted average common shares outstanding  basic and diluted
    
    
    99,072
    
    
    
    88,855
    
    
    
    97,801
    
    
    
    79,736
 The accompanying notes are an integral part of these condensed consolidated financial statements. 3




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.) 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 For the Six Months Ended June 30, 2005
 (In thousands)
 AccumulatedOptions, Warrants
    
    
    OtherTreasury
    
    
    and Deferred
    
    
    Comprehensive
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Additional
    
    
    Stock
    
    
    Stock-Based
    
    
    Income
    
    
    Accumulated
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Paid-in Capital
    
    
    at Cost
    
    
    Compensation
    
    
    (Loss)
    
    
    Deficit
    
    
    EquityBalance, December 31, 2004
    
    
    90,358
    
    
    $
    904
    
    
    $
    345,904
    
    
    $
    (1,235
    )
    
    $
    28,282
    
    
    $
    29,133
    
    
    $
    (104,212
    )
    
    $
    298,776Common shares and warrants issued
    
    
    2,641
    
    
    
    26
    
    
    
    6,111
    
    
    
    
    
    
    
    630
    
    
    
    
    
    
    
    
    
    
    
    6,767Exercise of options and warrants
    
    
    161
    
    
    
    2
    
    
    
    769
    
    
    
    
    
    
    
    (250
    )
    
    
    
    
    
    
    
    
    
    
    521Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,147
    
    
    
    
    
    
    
    
    
    
    
    1,147Conversion of exchangeable shares
    
    
    78
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other paid-in capital
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,611
    )
    
    
    
    
    
    
    (3,611
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,781
    )
    
    
    (28,781
    )Balance, June 30, 2005
    
    
    93,238
    
    
    $
    933
    
    
    $
    352,757
    
    
    $
    (1,235
    )
    
    $
    29,809
    
    
    $
    25,522
    
    
    $
    (132,993
    )
    
    $
    274,793
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.) 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Six Months Ended June 30,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (28,781
    )
    
    $
    (29,349
    )Adjustments to reconcile net loss to net cash flows
from operating activities:Depreciation, depletion and amortization
    
    
    20,148
    
    
    
    13,281Cumulative mandatorily redeemable preferred stock dividends and amortization
of issue costs
    
    
    9,956
    
    
    
    8,309Amortization of debt issue costs
    
    
    705
    
    
    
    9,616Deferred income tax provision
    
    
    5,063
    
    
    
    3,338Non-cash stock-based compensation (benefit)
    
    
    1,147
    
    
    
    (1,034
    )Other non-cash items
    
    
    427
    
    
    
    63Changes in operating assets and liabilities (excluding the effects
of acquisitions):Accounts receivable
    
    
    475
    
    
    
    (2,594
    )Prepaid expenses and other current assets
    
    
    1,746
    
    
    
    (2,243
    )Accounts payable
    
    
    (2,232
    )
    
    
    5,901Accrued expenses and other current liabilities
    
    
    1,438
    
    
    
    2,79310,092
    
    
    
    8,081Cash flows from investing activities:Cash used in business combinations and significant asset
acquisitions, net of cash acquired
    
    
    (775
    )
    
    
    (161,439
    )Capital expenditures
    
    
    (19,562
    )
    
    
    (22,606
    )Proceeds from asset sales and business divestitures
    
    
    636
    
    
    
    9,983Deposits for business acquisitions and other
    
    
    (691
    )
    
    
    (542
    )(20,392
    )
    
    
    (174,604
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    
    
    
    
    266,000Principal repayments of debt and capital lease obligations
    
    
    (830
    )
    
    
    (181,639
    )Sale of common shares and warrants
    
    
    7,125
    
    
    
    53,600Proceeds from release of restricted cash and release of collateral
supporting letters of credit
    
    
    
    
    
    
    22,617Proceeds from the exercise of options and warrants
    
    
    521
    
    
    
    1,041Fees paid for financing transactions
    
    
    
    
    
    
    (12,999
    )6,816
    
    
    
    148,620Effect of exchange rate changes on cash and cash equivalents
    
    
    (133
    )
    
    
    (204
    )Decrease in cash and cash equivalents
    
    
    (3,617
    )
    
    
    (18,107
    )Cash and cash equivalents, beginning of period
    
    
    8,507
    
    
    
    21,062Cash and cash equivalents, end of period
    
    $
    4,890
    
    
    $
    2,955
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.) 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization of Business and Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of
Waste Services, Inc. (Waste Services), successor to Capital Environmental Resource Inc. now known
as Waste Services (CA) Inc. (Capital, Waste Services (CA) or the Canadian operations) and its
wholly owned subsidiaries (collectively, we, us or our). We are a multi-regional, integrated
solid waste services company, providing collection, transfer, landfill disposal and recycling
services for commercial, industrial and residential customers in the United States and Canada. In
2003, we initiated a disposal-based growth strategy to enter the United States solid waste market
and establish leading, vertically integrated market positions. Under this strategy, we enter
geographic markets with attractive growth or competitive characteristics by acquiring and
developing landfill disposal capacity, then acquiring and developing waste collection and transfer
operations. As part of our business strategy to expand into the United States, we entered into a
migration transaction, which was completed effective July 31, 2004. Under the migration
transaction, our corporate structure was reorganized so that Waste Services, a Delaware company, is
the ultimate parent company of our corporate group. Prior to the migration transaction, Waste
Services was a subsidiary of Capital. After the migration transaction, Capital became Waste
Services subsidiary. Effective with the completion of the migration transaction on July 31, 2004,
the historical equity balances of Capital were reclassified into the equity of Waste Services. These condensed consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. All significant intercompany transactions
and accounts have been eliminated. All figures are presented in thousands of U.S. dollars, except
share and per share data, or except where expressly stated as being in Canadian dollars (C$) or
in millions. Certain information related to our organization, significant accounting policies and
footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States has been condensed or omitted. The
accounting policies followed in the preparation of these interim condensed consolidated financial
statements are consistent with those followed in our annual consolidated financial statements for
the year ended December 31, 2004, as filed on Form 10-K. In the opinion of management, these
unaudited condensed consolidated financial statements contain all material adjustments, consisting
only of normal recurring adjustments, necessary to fairly state our financial position, results of
operations and cash flows for the periods presented and the presentations and disclosures herein
are adequate when read in conjunction with our Form 10-K for the year ended December 31, 2004.
Income taxes during these interim periods have been provided for based upon our anticipated annual
effective income tax rate. Certain reclassifications have been made to the prior period financial
statement amounts to conform to the current presentation. Due to the seasonal nature of our
business, operating results for interim periods are not necessarily indicative of the results for
full years. These interim financial statements should be read in conjunction with our audited
consolidated financial statements and notes thereto appearing in our annual report on Form 10-K for
the year ended December 31, 2004. The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Significant estimates include
the allowance for doubtful accounts, depletion of landfill development costs, intangible assets,
goodwill, liabilities for landfill capping, closure and post-closure obligations, insurance
reserves, potential liabilities in connection with outstanding litigation and deferred taxes. A portion of our operations are domiciled in Canada; for each reporting period, we translate
the results of operations and financial condition of our Canadian operations into U.S. dollars.
Therefore, reported results of operations and financial condition are subject to changes in the
exchange relationship between the two currencies. For example, as the relationship of the Canadian
dollar strengthens against the U.S. dollar, revenue is favorably affected and conversely expenses
are unfavorably affected. Assets and liabilities of Canadian operations have been translated from
Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet
dates, and revenue and expenses of Canadian operations have been translated from Canadian dollars
into U.S. dollars at the
average exchange rates prevailing during the period. Unrealized gains and losses on
translation of the Canadian operations into U.S. dollars are reported as a separate component of
shareholders equity and are included in 6




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) comprehensive income (loss). Separately, monetary assets
and liabilities denominated in U.S. dollars held by our Canadian operations are re-measured from
U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of
re-measurement are reported currently as a component of net income (loss). Currently, we do not
hedge our exposure to changes in foreign exchange rates. Basic earnings (loss) per share is calculated by dividing income (loss) available to common
shareholders by the weighted average number of common shares outstanding for the period including
the effect of currently outstanding exchangeable shares of Waste Services (CA) (not held by Waste
Services) that are the functional and economic equivalent of our outstanding common shares. Diluted
earnings (loss) per share is calculated based on the weighted average number of common shares
outstanding during the period plus the dilutive effect of common stock purchase warrants and stock
options using the treasury stock method. Due to the net losses for the three and six months ended June 30, 2005 and 2004, basic and diluted loss per share were
the same, as the effect of potentially dilutive securities would have been anti-dilutive. Dilutive
securities not included in the diluted loss per share calculation are as follows (unaudited) (in
thousands): Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Options to purchase common shares
    
    
    82
    
    
    
    999
    
    
    
    49
    
    
    
    1,378Warrants to purchase common shares
    
    
    2,608
    
    
    
    5,285
    
    
    
    2,144
    
    
    
    6,064Dilutive securities
    
    
    2,690
    
    

    
    6,284
    
    
    
    2,193
    
    
    
    7,442
 For purposes of computing net income (loss) per common share  basic and diluted, for the
three and six months ended June 30, 2005, the weighted average number of shares of common stock
outstanding includes the effect of 6,501,594 and 6,524,662,
respectively, exchangeable shares of
Waste Services (CA) as if they
were shares of our outstanding common stock from July 31, 2004, the date our migration transaction was
completed. 2. New Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123 (revised 2004), Shares-Based Payment, (SFAS
No. 123(R)), which amends SFAS No. 123, Accounting
for Stock-Based Compensation(SFAS No. 123),and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.SFAS No. 123(R) requires
compensation expense to be recognized for all share-based payments made to employees based on the
fair value of the award at the date of grant, eliminating the intrinsic value alternative allowed
by SFAS No. 123. Generally, the approach to determining fair value under the original pronouncement
has not changed. However, there are revisions to the accounting guidelines, such as accounting for
forfeitures, that will change our accounting for stock-based awards in the future. The original effective date of SFAS No. 123(R) was the first interim or annual reporting
period beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission amended
Rule 4-01(a) of Regulation S-X in order to delay the effective date of SFAS No. 123(R). The
amendment requires that public entities apply the provisions of SFAS No. 123(R) beginning with the
first annual reporting period of the registrants first fiscal year beginning on or after June 15,
2005. As a result of the amendment, SFAS No. 123(R) will be effective for us at the beginning of
the first quarter of 2006. The statement allows companies to adopt its provisions using either of
the following transition alternatives: (i) The prospective method, which results in the recognition of compensation expense using SFAS
No. 123(R) for all share-based awards granted after the effective date and the recognition of
compensation expense using SFAS No. 123 for all previously granted share-based awards that remain
unvested at the effective date; or (ii) The retrospective method, which results in applying the prospective method and restating
prior periods by recognizing the financial statement impact of share-based payments in a matter
consistent with the pro forma disclosure requirements of SFAS No. 123. 7




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) We have not yet determined either the method of adoption or the impact that the new standard
is expected to have on our financial statements. 3. Property and Equipment Property and equipment consist of the following: June 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Land and buildings
    
    $
    21,093
    
    
    $
    18,872Vehicles
    
    
    95,532
    
    
    
    101,215Containers,
compactors and landfill and recycling equipment
    
    
    65,803
    
    
    
    61,550Furniture, fixtures, other office equipment and leasehold improvements
    
    
    9,755
    
    
    
    8,562Total property and equipment
    
    
    192,183
    
    
    
    190,199Less: Accumulated depreciation
    
    
    (67,394
    )
    
    
    (59,732
    )Property and equipment, net
    
    $
    124,789
    
    
    $
    130,467
 4. Landfill Sites, Accrued Closure, Post-Closure and Other Obligations Landfill Sites Landfill sites consist of the following: June 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Landfill sites
    
    $
    193,975
    
    
    $
    188,616Accumulated depletion
    
    
    (24,241
    )
    
    
    (19,000
    )Landfill sites, net
    
    $
    169,734
    
    
    $
    169,616
 The changes in landfill sites for the six months ended June 30, 2005 and 2004 are as
follows (unaudited): 2005
    
    
    2004Balance, beginning of period
    
    $
    169,616
    
    
    $
    117,541Acquisitions
    
    
    
    
    
    
    41,982Additional landfill site costs
    
    
    5,081
    
    
    
    7,938Additional asset retirement obligations
    
    
    731
    
    
    
    312Depletion
    
    
    (5,513
    )
    
    
    (2,774
    )Divestitures
    
    
    
    
    
    
    (154
    )Capitalized interest
    
    
    
    
    
    
    178Purchase
price allocation adjustments for prior acquisitions and other
    
    
    99
    
    
    
    5,905Effect of foreign exchange rate fluctuations
    
    
    (280
    )
    
    
    (389
    )Change in accounting principle
    
    
    
    
    
    
    (2,474
    )Balance, end of period
    
    $
    169,734
    
    
    $
    168,065
 Accrued Closure, Post-Closure and Other Obligations Accrued closure, post-closure and other obligations consist of the following: 8




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) June 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Accrued closure and post-closure obligations
    
    $
    7,394
    
    
    $
    6,390Deferred income tax liability
    
    
    7,978
    
    
    
    3,984Other obligations
    
    
    443
    
    
    
    600$
    15,815
    
    
    $
    10,974
 Accrued closure and post-closure obligations include costs associated with obligations
for closure and post-closure of our landfills. The anticipated timeframe for paying these costs
varies based on the remaining useful life of each landfill as well as the duration of the
post-closure monitoring period. The changes to accrued closure and post-closure obligations for the
six months ended June 30, 2005 and 2004 are as follows (unaudited): 2005
    
    
    2004Balance, beginning of period
    
    $
    6,390
    
    
    $
    7,737Acquisitions
    
    
    
    
    
    
    52Accretion
    
    
    358
    
    
    
    224Additional asset retirement obligations
    
    
    731
    
    
    
    312Divestitures
    
    
    
    
    
    
    (146
    )Purchase price allocation adjustments for prior acquisitions
    
    
    
    
    
    
    (92
    )Effect of foreign exchange rate fluctuations
    
    
    (85
    )
    
    
    (94
    )Change in accounting principle
    
    
    
    
    
    
    (2,831
    )Balance, end of period
    
    $
    7,394
    
    
    $
    5,162
 5. Goodwill and Other Intangible Assets Goodwill and other intangible assets consist of the following: June 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Other intangible assets subject to amortization:Customer relationships and contracts
    
    $
    35,282
    
    
    $
    50,495Non-competition agreements and other
    
    
    3,225
    
    
    
    4,12638,507
    
    
    
    54,621Less: Accumulated amortization:Customer relationships and contracts
    
    
    (9,069
    )
    
    
    (5,913
    )Non-competition agreements and other
    
    
    (1,777
    )
    
    
    (1,782
    )Other intangible assets subject to amortization, net
    
    
    27,661
    
    
    
    46,926Goodwill
    
    
    303,967
    
    
    
    280,830Goodwill and other intangible assets, net
    
    $
    331,628
    
    
    $
    327,756
 The changes in goodwill for the six months ended June 30, 2005 and 2004 are as follows
(unaudited): 9




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 2005
    
    
    2004U.S.
    
    
    Canada
    
    
    Total
    
    
    TotalBalance, beginning of period
    
    $
    195,575
    
    
    $
    85,255
    
    
    $
    280,830
    
    
    $
    144,544Acquisitions
    
    
    9
    
    
    
    
    
    
    
    9
    
    
    
    142,671Divestitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,645
    )Effect of foreign exchange rate fluctuations
    
    
    
    
    
    
    (1,620
    )
    
    
    (1,620
    )
    
    
    (2,207
    )Purchase price allocation adjustments
for prior acquisitions
    
    
    24,748
    
    
    
    
    
    
    
    24,748
    
    
    
    (6,108
    )Balance, end of period
    
    $
    220,332
    
    
    $
    83,635
    
    
    $
    303,967
    
    
    $
    270,255
 During the first half of 2005, we revised our estimate of the fair value of customer
relationships, non-compete arrangements and certain vehicles and containers acquired as part of the
acquisition of Florida Recycling. 6. Other Assets Other assets consist of the following: June 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Debt and redeemable Preferred Stock issue costs, net of accumulated amortization
of $3,494 as of June 30, 2005 and $2,271 as of December 31, 2004
    
    $
    9,757
    
    
    $
    10,833Acquisition deposits and deferred acquisition costs
    
    
    12,870
    
    
    
    12,576Deferred income taxes
    
    
    
    
    
    
    1,202Other assets
    
    
    642
    
    
    
    830$
    23,269
    
    
    $
    25,441
 7. Debt Debt consists of the following: June 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Senior Secured Credit Facilities:Revolving
credit facility due March 2009, floating interest rate at 7.78%
as of June 30, 2005 and 6.71% as of December 31, 2004
    
    $
    15,000
    
    
    $
    15,000Term loan
facility due March 2011, floating interest rate at 7.68% as of
June 30, 2005 and 6.78% as of December 31, 2004
    
    
    98,750
    
    
    
    99,250Senior
Subordinated Notes due 2014, fixed interest rate at 9.5% as of
June 30, 2005 and December 31, 2004
    
    
    160,000
    
    
    
    160,000Other subordinated promissory notes payable due 2017, interest at 6.67%
    
    
    3,049
    
    
    
    3,130276,799
    
    
    
    277,380Less: Current portion
    
    
    (1,172
    )
    
    
    (1,166
    )Long-term portion
    
    $
    275,627
    
    
    $
    276,214
 10




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Senior Secured Credit Facilities On April 30, 2004, we entered into new Senior Secured Credit Facilities (the Credit
Facilities) with a syndicate of lenders. The Credit Facilities consist of a five-year revolving
credit facility in the amount of $60.0 million, up to $15.0 million of which is available to our
Canadian operations, and a seven-year term loan facility in the
amount of $100.0 million. The term loan requires quarterly
installments of $0.25 million due each March 31, June 30,
September 30, and December 31 through March 31, 2010
and quarterly installments of $23.5 million due thereafter
through to March 31,
2011. The
Credit Facilities bear interest based upon a spread over base rate or Eurodollar loans, as defined,
at our option. The Credit Facilities are secured by substantially all of the assets of our U.S.
restricted subsidiaries. Our Canadian restricted subsidiaries guarantee and pledge all of their
assets only in support of the portion of the revolving credit facility available to them.
Additionally, 65% of the common shares of Waste Services first tier foreign subsidiaries are
pledged to secure obligations under the Credit Facilities. Our Credit Facilities, as amended, contain certain financial and other covenants that restrict
our ability to, among other things, make capital expenditures, incur indebtedness, incur liens,
dispose of property, repay debt, pay dividends, repurchase shares and make certain acquisitions.
Our financial covenants include: (i) minimum consolidated interest coverage; (ii) maximum total
leverage; and (iii) maximum senior secured leverage. On October 4, 2004, we entered into an amendment to the Credit Facilities with the
administrative agent for the lenders. The amendment included changes to certain of the financial
and other covenants contained in the Credit Facilities and increased the current interest rates
payable on amounts outstanding by 125 basis points to 450 basis points over Eurodollar loans. Until
we meet certain target leverage ratios, as defined, availability under the amended facility is
reduced to $50.0 million, up to $12.5 million of which is available to our Canadian operations. In
connection with the amendment, we paid a fee of approximately $0.5 million to our lenders. As of
June 30, 2005, $15.1 million of capacity remained under the facility. Currently, we are in
compliance with the financial covenants, as amended, and we expect to continue to be in compliance
in future periods. The amendment also required us to receive an equity investment of at least $7.5 million prior
to March 28, 2005. On March 28, 2005, we issued 2,640,845
shares of common stock and 264,085 warrants to Mr. Michael G.
DeGroote for net proceeds of approximately $6.8 million. The warrants to
purchase 264,085 shares of common stock are at an exercise price of
$2.84 per share and are exercisable until March 28, 2010. Senior Subordinated Notes On April 30, 2004, we completed a private offering of 91/2% Senior Subordinated Notes
(Subordinated Notes) due 2014 for gross proceeds of $160.0 million. The Subordinated Notes mature
on April 15, 2014. Interest on the Subordinated Notes is payable semi annually on October 15 and
April 15. The Subordinated Notes are redeemable, in whole or in part, at our option, on or after
April 15, 2009, at a redemption price of 104.75% of the principal amount, declining rateably in
annual increments to par on or after April 15, 2012, together with accrued interest to the
redemption date. In addition, prior to April 15, 2007, we may redeem up to 35.0% of the aggregate
principal amount of the Subordinated Notes with the proceeds of certain equity offerings, at a
redemption price equal to 109.5% of the principal amount. Upon a change of control, as such term is
defined in the Indenture, we are required to offer to repurchase all the Subordinated Notes at
101.0% of the principal amount, together with accrued interest and liquidated damages, if any, and
obtain the consent of our senior lenders to such payment or repay our indebtedness of our Credit
Facilities. The Subordinated Notes are unsecured and are subordinate to our existing and future senior
secured indebtedness, including our Credit Facilities, structurally subordinated to existing and
future indebtedness of our non-guarantor subsidiaries, rank equally with any unsecured senior
subordinated indebtedness and senior to our existing and future subordinated indebtedness. Our
obligations with respect to the Subordinated Notes, including principal, interest, premium, if any,
and liquidated damages, if any, are fully and unconditionally guaranteed on an unsecured, senior
subordinated basis by all of our existing and future domestic restricted subsidiaries. Our Canadian
operations are not guarantors under the Subordinated Notes. The Subordinated Notes contain certain covenants that, in certain circumstances and subject to
certain limitations and qualifications, restrict, among other things: (i) the incurrence of
additional debt; (ii) the payment of dividends and repurchases of stock; (iii) the issuance of
preferred stock and the issuance of stock of our subsidiaries; (iv) 11




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) certain investments; (v) the repurchase of our Preferred Stock; (vi) transactions with
affiliates; and (vii) certain sales of assets. We also entered into a Registration Rights Agreement with the initial purchaser of the
Subordinated Notes in which we agreed to (i) file a registration statement with respect to the
Subordinated Notes within 120 days of the closing date of the issuance of the notes (August 28,
2004), pursuant to which we will offer to exchange the Subordinated Notes for registered notes with
terms identical to the Subordinated Notes; (ii) have such registration statement declared effective
within 210 days of the issuance date; (iii) maintain the effectiveness of such registration
statement for minimum periods specified in the agreement; and (iv) file a shelf registration
statement in the circumstances and within the time periods specified in the agreement. As we have
yet to comply with (i), (ii) and (iii) above, we were required to pay liquidated damages, in cash,
in the amount equal to $0.05 per week per $1,000 in principal amount of the unregistered
Subordinated Notes, for each week that the default continued for the first 90-days following
default (approximately $8,000 per week). The amount of liquidated damages will increase by an
additional $0.05 per week per $1,000 in principal amount of unregistered Subordinated Notes for
each subsequent 90-day period until all defaults have been cured, to a maximum of $0.50 per week
per $1,000 in principal amount of unregistered Subordinated Notes outstanding. These liquidated
damages are payable at the same time as interest payments due under the Subordinated Notes.
Currently, our interest penalty approximates $32,000 per week until August 24, 2005, when it will
increase to $40,000 per week. 8. Cumulative Mandatorily Redeemable Preferred Stock In May 2003, we issued 55,000 shares of redeemable Preferred Stock (the Preferred Stock) to
Kelso Investment Associates VI, L.P. and KEP VI, LLC (collectively Kelso), pursuant to the terms
of an agreement dated as of May 6, 2003, as amended in February and June 2004 at a price of $1,000
per share. We also issued to Kelso warrants to purchase 7,150,000 shares of common stock for $3.00
per share. The warrants are exercisable at any time until May 6, 2010. The issuance of the
Preferred Stock resulted in proceeds of approximately $49.5 million, net of fees of approximately
$5.5 million. The shares of Preferred Stock are non-voting. The Preferred Stock entitles the holders to cash dividends of 17.75% per annum compounding and
accruing quarterly in arrears and to a liquidation preference of $1,000 per share, adjusted for any
stock dividend, stock split, reclassification, recapitalization, consolidation or similar event
affecting the Preferred Stock, plus the amount of any accrued but
unpaid dividends on such shares as
of any date of determination. The liquidation preference approximated $80.0 million as of June 30,
2005. As we are not permitted to declare and pay cash dividends pursuant to the terms of our Credit
Facilities, the dividend payments will accrue. The Preferred Stock, including all accrued and
unpaid dividends, must be redeemed in full by no later than May 6, 2015. Until May 6, 2006, we may
redeem all or any part of the Preferred Stock on payment of the sum of $1,000 per share plus
accrued and unpaid dividends calculated as if the Preferred Stock were redeemed on May 6, 2006, or
approximately $92.7 million. If we do not exercise our option to redeem all of the Preferred Stock
by May 6, 2009, Kelso may require us to initiate a sale of our assets on terms acceptable to our
board consistent with the exercise of their fiduciary duties. Pursuant to an amendment to the
Certificate of Designations dated April 30, 2004, if we determine, after conducting a sale process,
that any such sale would not yield sufficient proceeds to repay in full the indebtedness then
outstanding under our Credit Facilities and the redemption amount of our Subordinated Notes issued
on April 30, 2004, or at least $320.0 million, then we may elect to delay such sale. The sale date
may be delayed until the earliest to occur of (i) the final maturity date of the Subordinated Notes
(April 15, 2014); (ii) the date on which our Credit Facilities and the Subordinated Notes are fully
repaid or otherwise satisfied; or (iii) a sale of our assets to a third party. We refer to this
date as the delayed sale date. If we do not initiate and complete a sale of our assets within 20
months of initiation of the sale process by the holders of the Preferred Stock, then on notice from
the holders of the Preferred Stock, all outstanding Preferred Stock will become due and payable on
the first anniversary of the date on which the holders of the Preferred Stock gave notice requiring
the initiation of a sale process, for a liquidation amount of 1.20 times the liquidation preference
of $1,000 per share. If the sale date has been delayed, then we are not required to pay this
increased liquidation amount until the delayed sale date. 12




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Also pursuant to the Amended Certificate of Designations, if we become subject to a
liquidation or insolvency event (as such terms are defined in our Amended and Restated Credit
Agreement dated April 30, 2004) or in the
event of a change of control (as such term is defined in the Amended Certificate of
Designations), all payments and other distributions to holders of Preferred Stock will be
subordinate to the repayment in full of our Credit Facilities. This provision does not prohibit any
accrual or increase in the dividend rate or in the liquidation preference of the Preferred Stock as
provided for in the Amended Certificate of Designations, or the distribution of additional shares
or other equity securities to the holders of the Preferred Stock, so long as such additional shares
or other equity securities are subject to at least equivalent subordination provisions. In
addition, the Amended Certificate of Designations prohibits us from making any payment or
distribution to the holders of Preferred Stock in the event of a sale of our assets, or the
exercise by the holders of the Preferred Stock of their right to require payment of the liquidation
amount of their shares as a result of the failure to consummate a sale of our assets as described
in the preceding paragraph, unless such payment or distribution is expressly permitted pursuant to
the terms of the agreement then governing our Credit Facilities. 9. Commitments and Contingencies Environmental Risks We are subject to liability for environmental damage that our solid waste facilities may
cause, including damage to neighboring landowners or residents, particularly as a result of the
contamination of soil, groundwater or surface water, including damage resulting from conditions
existing prior to our acquisition of such facilities. Pollutants or hazardous substances whose
transportation, treatment, or disposal was arranged by us or our predecessors, may also subject us
to liability for any off-site environmental contamination caused by these pollutants or hazardous
substances. Any substantial liability for environmental damage incurred by us could have a material
adverse effect on our financial condition, results of operations or cash flows. As of the date of
these condensed consolidated financial statements, we estimate the range of reasonably possible
losses related to environmental matters to be insignificant and we are not aware of any such
environmental liabilities that would be material to our operations or financial condition. Legal Proceedings In the normal course of our business and as a result of the extensive governmental regulation
of the solid waste industry, we may periodically become subject to various judicial and
administrative proceedings involving federal, state, provincial or local agencies. In these
proceedings, an agency may seek to impose fines on us or revoke or deny renewal of an operating
permit or license held by us. From time to time, we may also be subject to actions brought by
citizens groups, adjacent landowners or residents in connection with the permitting and licensing
of transfer stations and landfills or allegations related to environmental damage or violations of
the permits and licenses pursuant to which we operate. In addition, we may become party to various claims and suits for alleged damages to persons
and property, alleged violations of certain laws and alleged liabilities arising out of matters
occurring during the normal operation of a waste management business. We are currently involved in
pending litigation with Waste Management of Canada Corporation (formerly Canadian Waste Services
Inc.), which is more fully described in our annual report for the year ended December 31, 2004 as
filed on Form 10-K. There have been no material developments in these claims in the first half of
2005. Our President and Chief Operating Officer, Charles A. Wilcox, is a defendant in a breach of
contract suit filed by Waste Management, Inc. which is more fully described in our annual report
for the year ended December 31, 2004 as filed on Form 10-K. Mr. Wilcox is subject to a temporary
order restraining him from engaging in certain activities adverse to the interests of Waste
Management. In April 2005, Waste Management filed an amended petition and application for
injunction naming us as a defendant to the suit, claiming, among other things, tortious
interference with contractual relations and seeking compensatory damages from us. We intend to
vigorously defend this claim both with respect to liability and damages. 13




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) In March 2005, we filed a Complaint against Waste Management, Inc. in the United States
District Court in the Middle District of Florida (Orlando). The Complaint alleges that Waste
Management sought to prevent us from
establishing ourselves as an effective competitor to Waste Management in the State of Florida,
by tortiously interfering with our business relationships and committing antitrust violations under
both federal and Florida law. We are seeking in excess of $25.0 million in damages against Waste
Management. If we are successful in our suit under antitrust laws, Waste Management would be liable
for treble damages, or in excess of $75.0 million. No provision has been made in these financial statements for the above matters. We do not
currently believe that the possible losses in respect of all or any of these matters would have a
material adverse impact on our business, financial condition, results of operations or cash flows. Surety Bonds, Letters of Credit and Insurance Municipal solid waste services contracts and permits and licenses to operate transfer
stations, landfills and recycling facilities may require performance or surety bonds, letters of
credit or other means of financial assurance to secure contractual performance. As of June 30, 2005
and December 31, 2004, we had provided customers and various regulatory authorities with such bonds
and letters of credit amounting to approximately $73.0 million and $67.7 million, respectively, to
collateralize our obligations. Our U.S.-based automobile, general liability and workers compensation insurance coverage is
subject to certain deductible limits. We retain up to $0.5 million and $0.25 million of risk per
claim, plus claims handling expense under our workers compensation and our auto and general
liability insurance programs, respectively. Claims in excess of such deductible levels are fully
insured subject to our policy limits. However, we have a limited claims history for our U.S.
operations and it is reasonably possible that recorded reserves may not be adequate to cover future
payments of claims. Adjustments, if any, to our reserves will be reflected in the period in which
the adjustments are known. As of June 30, 2005 and included in
the $73.0 million of bonds and letters of credit discussed
previously, we have posted a letter of credit with our U.S.
insurer of approximately $8.4 million to secure the liability for losses within the deductible
limit. Other Contractual Arrangements During December 2003, we issued 600,000 Common Shares as part of the purchase price of an
acquisition. In connection with this acquisition, we entered into a reimbursement agreement whereby
for a period of one year after the second anniversary of the closing date, we will reimburse the
seller for the loss on sale of shares below $4.75 per share. 10. Authorized Capital Stock and Migration Transaction Total Shares We are authorized to issue a total of 505,000,000 shares of capital stock consisting of:  
    
    500,000,000 shares of common stock, par value 0.01 per share; and
    
    5,000,000 shares of preferred stock, par value 0.01 per share, of which 100,000
shares have been designated as Series A Preferred Stock and one share has been designated
as Special Voting Preferred Stock. Preferred Stock The Series A Preferred Stock with a par value of $0.01 per share and a liquidation preference
of $1,000.00 per share, have the powers, preferences and other special rights and the
qualifications, limitations and restrictions that are set forth in the Certificate of Designations
of Series A Preferred Stock as amended. 55,000 shares of Series A Preferred Stock are currently
outstanding. The Special Voting Preferred Stock have the rights, preference, and limitations set
forth in the Certificate of Designation of Special Voting Preferred Stock. One share of Special
Voting Preferred Stock is presently outstanding. 14




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Migration Transaction As part of our business strategy to expand into the United States, we entered into a migration
transaction effective July 31, 2004. Under the migration transaction, our corporate structure was
reorganized so that Waste Services, a Delaware company, is the ultimate parent company of our
corporate group. Prior to the migration transaction, Waste Services was a subsidiary of Capital.
After the migration transaction, Capital, now Waste Services (CA), became our subsidiary. The migration transaction occurred by way of a plan of arrangement under Section 182 of the
Business Corporations Act (Ontario) and consisted primarily of: (i) the exchange of 87,657,035
common shares of Capital for 87,657,035 shares of common stock of Waste Services and (ii) the
conversion of the remaining 9,229,676 common shares of Capital held by non-U.S. residents who
elected to receive exchangeable shares into 9,229,676 exchangeable shares of Waste Services (CA).
The transaction was approved by the Ontario Superior Court of Justice
on July 30, 2004 and by our
shareholders at a special meeting held on July 27, 2004. The terms of the exchangeable shares of Waste Services (CA) are the economic and functional
equivalent of our common stock. Holders of exchangeable shares: (i) will receive the same dividends
as holders of shares of common stock; and (ii) will be entitled to vote on the same matters as
holders of shares of our common stock. Such voting is accomplished through the one share of Special
Voting Preferred Stock held by Computershare Trust Company of Canada as trustee, which will vote on
the instructions of the holders of the exchangeable shares (one vote for each exchangeable share).
As such, the exchangeable shares are included as additional paid-in capital. Upon the occurrence of certain events, such as the liquidation of Waste Services (CA), or
after the redemption date, our Canadian holding company, Capital Holdings will have the right to
purchase each exchangeable share for a share of our common stock, plus all declared and unpaid
dividends on the exchangeable share. Unless certain events occur, such redemption date will not be
earlier than December 31, 2016. Holders of exchangeable shares also have the right at any time at
their option, to exchange their exchangeable shares for shares of our common stock. 11. Employee and Director Stock Option Plans and Option Grants We
account for our stock-based plans under the recognition and measurement
principles of Accounting Principles Board Opinion (APB) No. 25 Accounting for Stock Issued to
Employees, and related interpretations. Pro forma information regarding the impact of stock-based
compensation on net income and earnings per share is required by SFAS No. 123 Accounting for
Stock-Based Compensationand SFAS No. 148 Accounting for Stock-Based Compensation-Transition and
Disclosure. Such unaudited pro forma information, determined as if we had accounted for our
employee stock options under the fair value recognition provisions of SFAS No. 123, is illustrated
in the following table (unaudited): Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss as reported
    
    $
    (14,514
    )
    
    $
    (18,615
    )
    
    $
    (28,781
    )
    
    $
    (29,349
    )Stock-based employee compensation expense
pursuant to SFAS No. 123
    
    
    (2,399
    )
    
    
    (2,419
    )
    
    
    (4,763
    )
    
    
    (4,708
    )Pro forma net loss
    
    $
    (16,913
    )
    
    $
    (21,034
    )
    
    $
    (33,544
    )
    
    $
    (34,057
    )Basic and diluted loss per share:As reported
    
    $
    (0.15
    )
    
    $
    (0.21
    )
    
    $
    (0.29
    )
    
    $
    (0.37
    )Pro forma
    
    $
    (0.17
    )
    
    $
    (0.24
    )
    
    $
    (0.34
    )
    
    $
    (0.43
    )
 The fair value of options granted is estimated using the Black-Scholes option pricing model
using the following assumptions: 15




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Annual dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average expected life (years)
    
    2.8 years
    
    3.0 years
    
    2.8 years
    
    3.0 yearsRisk-free interest rate
    
    2.57% to 4.62%
    
    2.57% to 4.62%
    
    2.57% to 4.62%
    
    2.57% to 4.62%Volatility
    
    
    74%
    
    
    
    53%
    
    
    
    74%
    
    
    
    53%
 Our 1997 and 1999 Stock Option Plans are described in our consolidated
financial statements for the year ended December 31, 2004 filed on Form 10-K. Our options are
denominated in U.S. and Canadian dollars. During the six months ended June 30, 2005, 815,000
options to purchase shares of our common stock were granted at
exercise prices equal to the quoted market price on the date of grant. As of June 30, 2005, the weighted average
exercise price for options outstanding was $4.52 and C$6.41 for U.S. and Canadian dollar
denominated options, respectively. During the six months ended June 30, 2005, 15,000 options were
exercised and 112,194 options expired or were forfeited. As of June 30, 2005, the aggregate number
of options outstanding entitled holders to purchase 13,333,770 shares of common stock at prices
ranging from $2.70 to $6.25 and C$4.05 to C$18.05 for U.S. and Canadian dollar denominated options,
respectively. 12. Comprehensive Loss Comprehensive
loss includes the effects of foreign currency translation.
Comprehensive loss for the three and six months ended June 30, 2005 and 2004 are as
follows (unaudited): Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (14,514
    )
    
    $
    (18,615
    )
    
    $
    (28,781
    )
    
    $
    (29,349
    )Foreign currency translation adjustment
    
    
    (2,385
    )
    
    
    (3,249
    )
    
    
    (3,611
    )
    
    
    (5,415
    )Comprehensive loss
    
    $
    (16,899
    )
    
    $
    (21,864
    )
    
    $
    (32,392
    )
    
    $
    (34,764
    )
 13. Segment Information We have determined our operating and reporting segments pursuant to the requirements of SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information. In making this
determination, we considered our organization/reporting structure and the information used by our
chief operating decision makers to make decisions about resource allocation and performance
assessment. We are organized along geographic locations or regions within the U.S. and Canada. Our
Canadian operations are organized between two regions, Eastern and Western Canada while the U.S. is
organized into Florida (North, Central and Gulf), Texas and Arizona. We believe our domestic U.S.
and our Canadian geographic segments meet the Aggregation Criteria set forth in SFAS No. 131 for
the following reasons: (i) the nature of the service, waste collection and disposal is economically
the same and transferable across locations; (ii) the type and class of customer is consistent among
regions/districts; (iii) the methods used to deliver services are essentially the same (e.g.
containers collect waste at market locations and trucks collect and transfer waste to landfills);
and (iv) the regulatory environment is consistent within Canada and the U.S., respectively. For
further information regarding our segments see Note 14. 16




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 14. Condensed Consolidating Financial Statements Waste
Services is the primary obligor under the Subordinated Notes, however
Waste Services has no independent assets
or operations, and the guarantees of our domestic restricted subsidiaries are full and
unconditional and joint and several with respect to the Senior Subordinated Notes, including
principal, interest, premium, if any, and liquidated damages, if any. Our Canadian operations are
not guarantors under the Senior Subordinated Notes. Prior to the
migration, Waste Services (CA), currently a non-guarantor, was our
parent (see Note 10). Presented below are our Condensed Consolidating
Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004 and the related Unaudited
Condensed Consolidating Statements of Operations for the three and six months ended June 30, 2005
and 2004 and the Unaudited Condensed Consolidating Statements of Cash Flows for the six months
ended June 30, 2005 and 2004 of our guarantor subsidiaries, our U.S. operating and reporting
segment, (Guarantors) and the subsidiaries which are not guarantors, our Canadian operating and
reporting segment, (Non-guarantors): 17




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) June 30, 2005Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,182
    
    
    $
    2,708
    
    
    $
    
    
    
    $
    4,890Accounts receivable, net
    
    
    23,099
    
    
    
    23,846
    
    
    
    
    
    
    
    46,945Prepaid expenses and other current assets
    
    
    4,884
    
    
    
    3,868
    
    
    
    
    
    
    
    8,752Total current assets
    
    
    30,165
    
    
    
    30,422
    
    
    
    
    
    
    
    60,587Property and equipment, net
    
    
    59,669
    
    
    
    65,120
    
    
    
    
    
    
    
    124,789Landfill sites, net
    
    
    158,007
    
    
    
    11,727
    
    
    
    
    
    
    
    169,734Goodwill and other intangible assets, net
    
    
    246,465
    
    
    
    85,163
    
    
    
    
    
    
    
    331,628Other assets
    
    
    10,647
    
    
    
    12,622
    
    
    
    
    
    
    
    23,269Investment in subsidiary
    
    
    191,096
    
    
    
    
    
    
    
    (191,096
    )
    
    
    Due from affiliate
    
    
    
    
    
    
    15,333
    
    
    
    (15,333
    )
    
    
    Total assets
    
    $
    696,049
    
    
    $
    220,387
    
    
    $
    (206,429
    )
    
    $
    710,007LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    12,334
    
    
    $
    11,410
    
    
    $
    
    
    
    $
    23,744Accrued expenses and other current liabilities
    
    
    33,285
    
    
    
    11,115
    
    
    
    
    
    
    
    44,400Short-term financing and current portion of long-term debt
    
    
    1,172
    
    
    
    
    
    
    
    
    
    
    
    1,172Total current liabilities
    
    
    46,791
    
    
    
    22,525
    
    
    
    
    
    
    
    69,316Long-term debt
    
    
    275,627
    
    
    
    
    
    
    
    
    
    
    
    275,627Accrued closure, post-closure and other obligations
    
    
    9,049
    
    
    
    6,766
    
    
    
    
    
    
    
    15,815Due to affiliate
    
    
    15,333
    
    
    
    
    
    
    
    (15,333
    )
    
    
    Cumulative mandatorily redeemable Preferred Stock, net
    
    
    74,456
    
    
    
    
    
    
    
    
    
    
    
    74,456Total liabilities
    
    
    421,256
    
    
    
    29,291
    
    
    
    (15,333
    )
    
    
    435,214Common
stock
    
    
    933
    
    
    
    
    
    
    
    
    
    
    
    933Other
equity
    
    
    273,860
    
    
    
    191,096
    
    
    
    (191,096
    )
    
    
    273,860Total shareholders equity
    
    
    274,793
    
    
    
    191,096
    
    
    
    (191,096
    )
    
    
    274,793Total liabilities and shareholders equity
    
    $
    696,049
    
    
    $
    220,387
    
    
    $
    (206,429
    )
    
    $
    710,007
 18




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) December 31, 2004Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,223
    
    
    $
    2,284
    
    
    $
    
    
    
    $
    8,507Accounts receivable, net
    
    
    24,509
    
    
    
    23,347
    
    
    
    
    
    
    
    47,856Prepaid expenses and other current assets
    
    
    6,440
    
    
    
    4,500
    
    
    
    
    
    
    
    10,940Total current assets
    
    
    37,172
    
    
    
    30,131
    
    
    
    
    
    
    
    67,303Property and equipment, net
    
    
    64,805
    
    
    
    65,662
    
    
    
    
    
    
    
    130,467Landfill sites, net
    
    
    155,710
    
    
    
    13,906
    
    
    
    
    
    
    
    169,616Goodwill and other intangible assets, net
    
    
    240,578
    
    
    
    87,178
    
    
    
    
    
    
    
    327,756Other assets
    
    
    12,105
    
    
    
    13,336
    
    
    
    
    
    
    
    25,441Investment in subsidiary
    
    
    192,115
    
    
    
    
    
    
    
    (192,115
    )
    
    
    Due from affiliate
    
    
    
    
    
    
    8,869
    
    
    
    (8,869
    )
    
    
    Total assets
    
    $
    702,485
    
    
    $
    219,082
    
    
    $
    (200,984
    )
    
    $
    720,583LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,757
    
    
    $
    10,192
    
    
    $
    
    
    
    $
    25,949Accrued expenses and other current liabilities
    
    
    31,104
    
    
    
    11,429
    
    
    
    
    
    
    
    42,533Short-term financing and current portion of long-term debt
    
    
    1,166
    
    
    
    
    
    
    
    
    
    
    
    1,166Total current liabilities
    
    
    48,027
    
    
    
    21,621
    
    
    
    
    
    
    
    69,648Long-term debt
    
    
    276,214
    
    
    
    
    
    
    
    
    
    
    
    276,214Accrued closure, post-closure and other obligations
    
    
    5,628
    
    
    
    5,346
    
    
    
    
    
    
    
    10,974Due to affiliate
    
    
    8,869
    
    
    
    
    
    
    
    (8,869
    )
    
    
    Cumulative mandatorily redeemable Preferred Stock, net
    
    
    64,971
    
    
    
    
    
    
    
    
    
    
    
    64,971Total liabilities
    
    
    403,709
    
    
    
    26,967
    
    
    
    (8,869
    )
    
    
    421,807Common
stock
    
    
    904
    
    
    
    
    
    
    
    
    
    
    
    904Other
equity
    
    
    297,872
    
    
    
    192,115
    
    
    
    (192,115
    )
    
    
    297,872Total shareholders equity
    
    
    298,776
    
    
    
    192,115
    
    
    
    (192,115
    )
    
    
    298,776Total liabilities and shareholders equity
    
    $
    702,485
    
    
    $
    219,082
    
    
    $
    (200,984
    )
    
    $
    720,583
 19




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Three Months Ended June 30, 2005Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Revenue
    
    $
    54,250
    
    
    $
    41,134
    
    
    $
    
    
    
    $
    95,384Operating and other expenses:Cost of operations (exclusive of depreciation, depletion and amortization)
    
    
    41,834
    
    
    
    27,485
    
    
    
    
    
    
    
    69,319Selling, general and administrative expense
    
    
    8,924
    
    
    
    5,755
    
    
    
    
    
    
    
    14,679Depreciation, depletion and amortization
    
    
    5,791
    
    
    
    4,808
    
    
    
    
    
    
    
    10,599Foreign exchange gain and other
    
    
    29
    
    
    
    (28
    )
    
    
    
    
    
    
    1Income (loss) from operations
    
    
    (2,328
    )
    
    
    3,114
    
    
    
    
    
    
    
    786Equity earning investees
    
    
    (1,417
    )
    
    
    
    
    
    
    1,417
    
    
    
    Interest expense (income)
    
    
    7,126
    
    
    
    47
    
    
    
    
    
    
    
    7,173Cumulative mandatorily redeemable preferred stock dividends and
amortization of issue costs
    
    
    5,114
    
    
    
    
    
    
    
    
    
    
    
    5,114Income
(loss) before income taxes
    
    
    (13,151
    )
    
    
    3,067
    
    
    
    (1,417
    )
    
    
    (11,501
    )Income tax provision
    
    
    1,363
    
    
    
    1,650
    
    
    
    
    
    
    
    3,013Net
income (loss)
    
    $
    (14,514
    )
    
    $
    1,417
    
    
    $
    (1,417
    )
    
    $
    (14,514
    )
 20




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Three Months Ended June 30, 2004Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Revenue
    
    $
    38,231
    
    
    $
    34,395
    
    
    $
    
    
    
    $
    72,626Operating and other expenses:Cost of operations (exclusive of depreciation, depletion and amortization)
    
    
    28,234
    
    
    
    23,210
    
    
    
    
    
    
    
    51,444Selling, general and administrative expense
    
    
    7,269
    
    
    
    5,516
    
    
    
    
    
    
    
    12,785Depreciation, depletion and amortization
    
    
    4,133
    
    
    
    3,676
    
    
    
    
    
    
    
    7,809Foreign exchange gain and other
    
    
    
    
    
    
    (283
    )
    
    
    
    
    
    
    (283
    )Income (loss) from operations
    
    
    (1,405
    )
    
    
    2,276
    
    
    
    
    
    
    
    871Equity loss investees
    
    
    
    
    
    
    21,020
    
    
    
    (21,020
    )
    
    
    Interest
expense (income)
    
    
    14,402
    
    
    
    (2,136
    )
    
    
    
    
    
    
    12,266Changes in fair value of warrants
    
    
    
    
    
    
    421
    
    
    
    
    
    
    
    421Cumulative mandatorily redeemable preferred stock dividends and
amortization of issue costs
    
    
    4,290
    
    
    
    
    
    
    
    
    
    
    
    4,290Loss before income taxes
    
    
    (20,097
    )
    
    
    (17,029
    )
    
    
    21,020
    
    
    
    (16,106
    )Income tax provision
    
    
    923
    
    
    
    1,586
    
    
    
    
    
    
    
    2,509Net loss
    
    $
    (21,020
    )
    
    $
    (18,615
    )
    
    $
    21,020
    
    
    $
    (18,615
    )
 21




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Six Months Ended June 30, 2005Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Revenue
    
    $
    107,091
    
    
    $
    77,278
    
    
    $
    
    
    
    $
    184,369Operating and other expenses:Cost of operations (exclusive of depreciation, depletion and amortization)
    
    
    81,401
    
    
    
    52,408
    
    
    
    
    
    
    
    133,809Selling, general and administrative expense
    
    
    18,489
    
    
    
    11,657
    
    
    
    
    
    
    
    30,146Depreciation, depletion and amortization
    
    
    11,201
    
    
    
    8,947
    
    
    
    
    
    
    
    20,148Foreign exchange gain and other
    
    
    (53
    )
    
    
    (184
    )
    
    
    
    
    
    
    (237
    )Income (loss) from operations
    
    
    (3,947
    )
    
    
    4,450
    
    
    
    
    
    
    
    503Equity earning investees
    
    
    (1,692
    )
    
    
    
    
    
    
    1,692
    
    
    
    Interest expense (income)
    
    
    13,844
    
    
    
    154
    
    
    
    
    
    
    
    13,998Cumulative mandatorily redeemable preferred stock dividends and
amortization of issue costs
    
    
    9,956
    
    
    
    
    
    
    
    
    
    
    
    9,956Income
(loss) before income taxes
    
    
    (26,055
    )
    
    
    4,296
    
    
    
    (1,692
    )
    
    
    (23,451
    )Income tax provision
    
    
    2,726
    
    
    
    2,604
    
    
    
    
    
    
    
    5,330Net
income (loss)
    
    $
    (28,781
    )
    
    $
    1,692
    
    
    $
    (1,692
    )
    
    $
    (28,781
    )
 22




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Six Months Ended June 30, 2004Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Revenue
    
    $
    58,231
    
    
    $
    64,712
    
    
    $
    
    
    
    $
    122,943Operating and other expenses:Cost of operations (exclusive of depreciation, depletion and amortization)
    
    
    41,738
    
    
    
    44,110
    
    

    
    
    
    
    
    85,848Selling, general and administrative expense
    
    
    12,666
    
    
    
    10,445
    
    
    
    
    
    
    
    23,111Depreciation, depletion and amortization
    
    
    6,159
    
    
    
    7,122
    
    
    
    
    
    
    
    13,281Foreign exchange gain and other
    
    
    
    
    
    
    (373
    )
    
    
    
    
    
    
    (373
    )Income (loss) from operations
    
    
    (2,332
    )
    
    
    3,408
    
    
    
    
    
    
    
    1,076Equity loss investees
    
    
    
    
    
    
    33,391
    
    
    
    (33,391
    )
    
    
    Interest expense (income)
    
    
    21,174
    
    
    
    (2,592
    )
    
    
    
    
    
    
    18,582Changes in fair value of warrants
    
    
    
    
    
    
    421
    
    
    
    
    
    
    
    421Cumulative mandatorily redeemable preferred stock dividends and
amortization of issue costs
    
    
    8,309
    
    
    
    
    
    
    
    
    
    
    
    8,309Loss before income taxes
    
    
    (31,815
    )
    
    
    (27,812
    )
    
    
    33,391
    
    
    
    (26,236
    )Income tax provision
    
    
    1,576
    
    
    
    1,762
    
    
    
    
    
    
    
    3,338Loss before cumulative effect of change in accounting principle
    
    
    (33,391
    )
    
    
    (29,574
    )
    
    
    33,391
    
    
    
    (29,574
    )Cumulative effect of change in accounting principle, net of provision
for income taxes of $132
    
    
    
    
    
    
    225
    
    
    
    
    
    
    
    225Net loss
    
    $
    (33,391
    )
    
    $
    (29,349
    )
    
    $
    33,391
    
    
    $
    (29,349
    )
 23




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Six months ended June 30, 2005Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Cash flows from operating activities:
    
    $
    (5,002
    )
    
    $
    15,094
    
    
    $
    
    
    
    $
    10,092Cash flows from investing activities:Cash used in business combinations and significant asset
acquisitions, net of cash acquired
    
    
    (775
    )
    
    
    
    
    
    
    
    
    
    
    (775
    )Capital expenditures
    
    
    (12,381
    )
    
    
    (7,181
    )
    
    
    
    
    
    
    (19,562
    )Proceeds from business divestitures
    
    
    314
    
    
    
    322
    
    
    
    
    
    
    
    636Deposits for business acquisitions and other
    
    
    23
    
    
    
    (714
    )
    
    
    
    
    
    
    (691
    )Intercompany
    
    
    
    
    
    
    (6,715
    )
    
    
    6,715
    
    
    
    (12,819
    )
    
    
    (14,288
    )
    
    
    6,715
    
    
    
    (20,392
    )Cash flows from financing activities:Principal repayments of debt
    
    
    (581
    )
    
    
    (249
    )
    
    
    
    
    
    
    (830
    )Sale of common shares and warrants
    
    
    7,125
    
    
    
    
    
    
    
    
    
    
    
    7,125Proceeds from the exercise of options and warrants
    
    
    521
    
    
    
    
    
    
    
    
    
    
    
    521Intercompany
    
    
    6,715
    
    
    
    
    
    
    
    (6,715
    )
    
    
    13,780
    
    
    
    (249
    )
    
    
    (6,715
    )
    
    
    6,816Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (133
    )
    
    
    
    
    
    
    (133
    )Increase
(decrease) in cash and cash equivalents
    
    
    (4,041
    )
    
    
    424
    
    
    
    
    
    
    
    (3,617
    )Cash and cash equivalents, beginning of period
    
    
    6,223
    
    
    
    2,284
    
    
    
    
    
    
    
    8,507Cash and cash equivalents, end of period
    
    $
    2,182
    
    
    $
    2,708
    
    
    $
    
    
    
    $
    4,890
 24




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Six month ended June 30, 2004Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Cash flows from operating activities:
    
    $
    (5,994
    )
    
    $
    14,075
    
    
    $
    
    
    
    $
    8,081Cash flows from investing activities:Cash used in business combinations and significant asset
acquisitions, net of cash acquired
    
    
    (160,315
    )
    
    
    (1,124
    )
    
    
    
    
    
    
    (161,439
    )Capital expenditures
    
    
    (13,640
    )
    
    
    (8,966
    )
    
    
    
    
    
    
    (22,606
    )Proceeds from business divestitures
    
    
    9,983
    
    
    
    
    
    
    
    
    
    
    
    9,983Deposits for business acquisitions and other
    
    
    1,433
    
    
    
    (1,975
    )
    
    
    
    
    
    
    (542
    )Intercompany
    
    
    
    
    
    
    (70,823
    )
    
    
    70,823
    
    
    
    (162,539
    )
    
    
    (82,888
    )
    
    
    70,823
    
    
    
    (174,604
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    266,000
    
    
    
    
    
    
    
    
    
    
    
    266,000Principal repayments of debt
    
    
    (180,953
    )
    
    
    (686
    )
    
    
    
    
    
    
    (181,639
    )Sale of common shares and warrants
    
    
    
    
    
    
    53,600
    
    
    
    
    
    
    
    53,600Proceeds from release of restricted cash and release of collateral
supporting letters of credit
    
    
    14,433
    
    
    
    8,184
    
    
    
    
    
    
    
    22,617Proceeds from the exercise of options and warrants
    
    
    
    
    
    
    1,041
    
    
    
    
    
    
    
    1,041Fees paid for financing transactions
    
    
    (10,076
    )
    
    
    (2,923
    )
    
    
    
    
    
    
    (12,999
    )Intercompany
    
    
    70,823
    
    
    
    
    
    
    
    (70,823
    )
    
    
    160,227
    
    
    
    59,216
    
    
    
    (70,823
    )
    
    
    148,620Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (204
    )
    
    
    
    
    
    
    (204
    )Decrease in cash and cash equivalents
    
    
    (8,306
    )
    
    
    (9,801
    )
    
    
    
    
    
    
    (18,107
    )Cash and cash equivalents, beginning of period
    
    
    8,843
    
    
    
    12,219
    
    
    
    
    
    
    
    21,062Cash and cash equivalents, end of period
    
    $
    537
    
    
    $
    2,418
    
    
    $
    
    
    
    $
    2,955
 25




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##### Table of Contents



Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Unaudited Condensed
Consolidated Financial Statements and Notes thereto included elsewhere herein as well as our annual
report on Form 10-K for the year ended December 31, 2004, as filed with the Securities and Exchange
Commission, including the factors set forth in the section titled Disclosure Regarding Forward-Looking Statements
as well as our other filings made with the Securities and Exchange
Commission. Overview We are a multi-regional, integrated solid waste services company, providing collection,
transfer, landfill disposal and recycling services for commercial, industrial and residential
customers in the United States and Canada. In 2003, we initiated a disposal-based growth strategy
to enter the United States solid waste market and establish leading, vertically integrated market
positions. Under this strategy, we enter geographic markets with attractive growth or competitive
characteristics by acquiring and developing landfill disposal capacity, then acquiring and
developing waste collection and transfer operations. As part of our business strategy to expand
into the United States, we entered into a migration transaction which was completed effective July
31, 2004. Under the migration transaction, our corporate structure was reorganized so that Waste
Services, a Delaware company and former subsidiary of Capital Environmental Resource Inc. (now
Waste Services (CA) Inc.) became the ultimate parent company of our corporate group. Sources of Revenue Our revenue consists primarily of fees charged to customers for solid waste collection,
landfill disposal, transfer and recycling services. We derive a substantial portion of our collection revenue from services provided to
commercial, industrial and residential customers that are generally performed under service
agreements or pursuant to contracts with municipalities. We recognize revenue when services are
rendered. Amounts billed to customers prior to providing the related services are reflected as
deferred revenue and reported as revenue in the periods in which the services are rendered. We provide collection services for commercial and industrial customers generally under one to
five year service agreements. We determine the fees we charge our customers based on a variety of
factors, including collection frequency, level of service, route density, the type, volume and
weight of the waste collected, type of equipment and containers furnished, the distance to the
disposal or processing facility, the cost of disposal or processing and prices charged by
competitors for similar services. Our contracts with commercial and industrial customers typically
allow us to pass on increased costs resulting from variable items such as disposal and fuel costs
and surcharges. Our ability to pass on cost increases is however, sometimes limited by the terms of
our contracts. We provide residential waste collection services through a variety of contractual
arrangements, including contracts with municipalities, owners and operators of large residential
complexes, mobile home parks and homeowners associations or subscription arrangements with
individual homeowners. Our contracts with municipalities are typically for a term of up to five
years and contain a formula, generally based on a predetermined published price index, for
automatic adjustments to fees to cover increases in some, but not all, of our operating costs.
Certain of our contracts with municipalities contain renewal provisions. The fees we charge for
residential solid waste collection services provided on a subscription basis are based primarily on
route density, the frequency and level of service, the distance to the disposal or processing
facility, the cost of disposal or processing and prices we charge in the market for similar
services. We charge our landfill and transfer station customers a tipping fee on a per ton or per yard
basis for disposing of their solid waste at our transfer stations and landfills. We generally base
our landfill tipping fees on market factors and the type and weight of, or volume of the waste
deposited. We generally base our transfer station tipping fees on market factors and the cost of
processing the waste deposited at the transfer station, the cost of transporting the waste to a
disposal facility and the cost of disposal. 26




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##### Table of Contents



Material recovery facilities generate revenue from the sale of recyclable commodities. In an
effort to reduce our exposure to commodity price fluctuations on recycled materials, where
competitive pressures permit, we charge collection or processing fees for recycling volume
collected from our customers. Expense Structure Our cost of operations primarily includes tipping fees and related disposal costs, labor and
related benefit costs, equipment maintenance, fuel, vehicle and workers compensation insurance and
landfill capping, closure and post-closure costs. Our strategy is to create vertically integrated
operations where possible, using transfer stations to link collection operations with our landfills
to increase internalization of our waste volume. Internalization lowers our disposal costs by
allowing us to eliminate tipping fees otherwise paid to an independent landfill or transfer station
operator. We believe internalization provides us with a competitive advantage by allowing us to be
a low cost provider in our markets. Historically our internalization has been relatively low, but
as a result of our new landfills in Florida and Arizona, we expect our internalization will
gradually increase over time as we develop our network of transfer stations and maximize delivery
of our collection volumes to these landfill sites. In markets where we do not have our own landfills, we seek to secure long-term disposal
arrangements with municipalities or private owners of landfills or transfer stations. In these
markets, our ability to maintain competitive prices for our collection services is generally
dependent upon our ability to secure low cost disposal pricing. If owners of third party disposal
sites discontinue our arrangements, we would have to seek alternative disposal sites which could
impact our profitability and cash flow. In addition, if third party disposal sites increase their
tipping fees and we are unable to pass these increases on to our collection customers, our
profitability and cash flow would be negatively impacted. We believe the age and condition of a fleet has a significant impact on operating costs
including, but not limited to, repairs and maintenance, insurance and driver training and retention
costs. Through capital investment, we seek to maintain an average fleet age of approximately six
years. We believe this enables us to minimize our repair and maintenance costs, safety and
insurance costs and employee turnover related costs. Selling, general and administrative expense includes managerial costs, information systems,
sales force, administrative expenses and professional fees. Depreciation, depletion and amortization expense includes depreciation of fixed assets over
their estimated useful lives using the straight-line method, depletion of landfill costs, including
capping, closure and post-closure obligations using the units-of-consumption method, and
amortization of intangible assets including customer relationships and contracts and covenants
not-to-compete, which are amortized over the expected life of the benefit to be received by such
intangibles. We capitalize certain third party costs related to pending acquisitions or development
projects. These costs remain deferred until we cease to be engaged on a regular and ongoing basis
with completion of the proposed acquisition, at which point they are charged currently to earnings.
In the event that the target is acquired, these costs are incorporated in the cost of the acquired
business. We expense indirect and internal costs including executive salaries, overhead and travel
costs related to acquisitions as they are incurred. Factors that Might Affect Future Results In 2004, we commenced operations at three large municipal solid waste landfill sites in the
United States that we believe will materially affect our revenue, profitability and cash flow going
forward. The following summarizes our operations at these three landfills:  
    
    JED Landfill  a municipal solid waste landfill with 23.7 million cubic yards
of initial permitted capacity, which opened for operation in the first quarter of 2004.
The landfill, which is located approximately 20 miles south of metropolitan Orlando, is
well positioned to serve the Orlando metropolitan area and the surrounding counties and
will allow us to internalize waste from our central Florida operations with the recent
opening of transfer stations located in Sanford and Taft, Florida. In May 2005, we began
delivering 27




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##### Table of Contents



Class 1 municipal sold waste to the Taft transfer station and recycling facility, located
south of Orlando. This facility is owned and operated by a third party with whom we have
entered into a 10-year disposal agreement, and the facility has a permit allowing it to
accept an average of 1,000 tons of Class I and Class III solid waste combined per day.
Actual operating rates may vary depending upon business conditions. In June 2005, we began
delivering Class I and Class III municipal solid waste to the Sanford transfer station and
recycling facility, also known as the Ice House facility. This facility is fully permitted to
accept an average of 4,000 cubic yards per day of Class I and III municipal solid waste.
Ownership of the Sanford facility will be transferred to us in the third quarter pursuant to
the terms of our settlement agreement with the former owners of Florida Recycling.
    
    Cactus Regional Landfill  a municipal solid waste landfill with 224.0 million
cubic yards of initial permitted capacity with expected utilization of 196.0 million cubic
yards, located in Pinal County, Arizona. The landfill is located between Phoenix and
Tucson, Arizona and is well-positioned to serve both markets. The facility opened for
operation in the third quarter of 2004. Also in the second and third quarters of 2004, we
began operations at our two newly constructed transfer stations in the Phoenix market area.
    
    Fort Bend Regional Landfill  a municipal and industrial solid waste landfill
with 47.6 million cubic yards of initial permitted capacity, located in Fort Bend County,
Texas. The landfill is located approximately 15 miles southwest of metropolitan Houston and
is well-positioned to serve the Houston metropolitan area, including Fort Bend County. The
facility opened for operation in the third quarter of 2004. We have constructed a transfer
station in Houston, which is permitted to accept up to 850 tons per day of municipal solid
waste and began operations in January 2005.
    
    We expect to continue to make strategic acquisitions which we intend to finance
through cash on hand, our Senior Secured Credit Facilities subject to the limitations on
our investing activities set out in the Credit Facilities Agreement, as amended and/or the
issuance of other debt and equity financings. We expect that we will continue to
rationalize certain aspects of our operations in markets where we are not internalized
through either divestiture or asset swap transactions in order to enhance density and/or
internalization opportunities in existing markets where we are vertically integrated. Results of Operations for the Three and Six Months Ended June 30, 2005 and 2004 Certain of our operations are domiciled in Canada; as such, we translate the results of
operations and financial condition of our Canadian operations into U.S. dollars. Therefore,
reported results of operations and financial condition are subject to changes in the exchange
relationship between the two currencies. For example, as the relationship of the Canadian dollar
strengthens against the U.S. dollar, revenue is favorably affected and conversely expenses are
unfavorably affected. Assets and liabilities of Canadian operations have been translated from
Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet
dates, and revenue and expenses of Canadian operations have been translated from Canadian dollars
into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and
losses on translation of the Canadian operations into U.S. dollars are reported as a separate
component of shareholders equity and are included in comprehensive income (loss). Separately,
monetary assets and liabilities denominated in U.S. dollars held by our Canadian operations are
re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The
effects of re-measurement are reported currently as a component of net income (loss). Currently, we
do not hedge our exposure to changes in foreign exchange rates. Our consolidated results of operations for the three and six months ended June 30, 2005 and
2004 by geographic segment are as follows (in thousands): 28




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##### Table of Contents



Three Months Ended June 30,2005U.S.
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    54,250
    
    
    
    100.0
    %
    
    $
    41,134
    
    
    
    100.0
    %
    
    $
    95,384
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    41,834
    
    
    
    77.1
    
    
    
    27,485
    
    
    
    66.8
    
    
    
    69,319
    
    
    
    72.7Selling, general and
administrative expense
    
    
    8,924
    
    
    
    16.4
    
    
    
    5,114
    
    
    
    12.4
    
    
    
    14,038
    
    
    
    14.7Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    641
    
    
    
    1.6
    
    
    
    641
    
    
    
    0.7Depreciation, depletion
and amortization
    
    
    5,791
    
    
    
    10.7
    
    
    
    4,808
    
    
    
    11.7
    
    
    
    10,599
    
    
    
    11.1Foreign exchange loss
and other
    
    
    29
    
    
    
    0.1
    
    
    
    (28
    )
    
    
    -0.1
    
    
    
    1
    
    
    
    Income (loss) from operations
    
    $
    (2,328
    )
    
    
    -4.3
    %
    
    $
    3,114
    
    
    
    7.6
    %
    
    $
    786
    
    
    
    0.8
    %
 Three Months Ended June 30,2004U.S.
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    38,231
    
    
    
    100.0
    %
    
    $
    34,395
    
    
    
    100.0
    %
    
    $
    72,626
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    28,234
    
    
    
    73.9
    
    
    
    23,210
    
    
    
    67.5
    
    
    
    51,444
    
    
    
    70.8Selling, general and
administrative expense
    
    
    7,243
    
    
    
    18.9
    
    
    
    5,185
    
    
    
    15.1
    
    
    
    12,428
    
    
    
    17.1Stock-based compensation expense
    
    
    26
    
    
    
    0.1
    
    
    
    331
    
    
    
    0.9
    
    
    
    357
    
    
    
    0.5Depreciation, depletion
and amortization
    
    
    4,133
    
    
    
    10.8
    
    
    
    3,676
    
    
    
    10.7
    
    
    
    7,809
    
    
    
    10.8Foreign exchange loss
and other
    
    
    
    
    
    
    
    
    
    
    (283
    )
    
    
    -0.8
    
    
    
    (283
    )
    
    
    -0.4Income (loss) from operations
    
    $
    (1,405
    )
    
    
    -3.7
    %
    
    $
    2,276
    
    
    
    6.6
    %
    
    $
    871
    
    
    
    1.2
    %
 Six Months Ended June 30,2005U.S.
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    107,091
    
    
    
    100.0
    %
    
    $
    77,278
    
    
    
    100.0
    %
    
    $
    184,369
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    81,401
    
    
    
    76.0
    
    
    
    52,408
    
    
    
    67.8
    
    
    
    133,809
    
    
    
    72.6Selling, general and
administrative expense
    
    
    18,489
    
    
    
    17.3
    
    
    
    10,510
    
    
    
    13.6
    
    
    
    28,999
    
    
    
    15.7Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,147
    
    
    
    1.5
    
    
    
    1,147
    
    
    
    0.6Depreciation, depletion
and amortization
    
    
    11,201
    
    
    
    10.5
    
    
    
    8,947
    
    
    
    11.6
    
    
    
    20,148
    
    
    
    10.9Foreign exchange loss
and other
    
    
    (53
    )
    
    
    -0.1
    
    
    
    (184
    )
    
    
    -0.3
    
    
    
    (237
    )
    
    
    -0.1Income (loss) from operations
    
    $
    (3,947
    )
    
    
    -3.7
    %
    
    $
    4,450
    
    
    
    5.8
    %
    
    $
    503
    
    
    
    0.3
    %
 29




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##### Table of Contents



Six Months Ended June 30,2004U.S.
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    58,231
    
    
    
    100.0
    %
    
    $
    64,712
    
    
    
    100.0
    %
    
    $
    122,943
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    41,738
    
    
    
    71.7
    
    
    
    44,110
    
    
    
    68.2
    
    
    
    85,848
    
    
    
    69.8Selling, general and
administrative expense
    
    
    12,640
    
    
    
    21.7
    
    
    
    11,505
    
    
    
    17.8
    
    
    
    24,145
    
    
    
    19.6Stock-based compensation expense (benefit)
    
    
    26
    
    
    
    
    
    
    
    (1,060
    )
    
    
    -1.7
    
    
    
    (1,034
    )
    
    
    -0.8Depreciation, depletion
and amortization
    
    
    6,159
    
    
    
    10.6
    
    
    
    7,122
    
    
    
    11.0
    
    
    
    13,281
    
    
    
    10.8Foreign exchange loss
and other
    
    
    
    
    
    
    0.0
    
    
    
    (373
    )
    
    
    -0.6
    
    
    
    (373
    )
    
    
    -0.3Income (loss) from operations
    
    $
    (2,332
    )
    
    
    -4.0
    %
    
    $
    3,408
    
    
    
    5.3
    %
    
    $
    1,076
    
    
    
    0.9
    %
 Revenue A summary of our revenue is as follows (in thousands): Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Collection
    
    $
    79,796
    
    
    
    76.9
    %
    
    $
    60,688
    
    
    
    78.7
    %
    
    $
    155,136
    
    
    
    77.9
    %
    
    $
    101,079
    
    
    
    77.4
    %Landfill disposal
    
    
    10,407
    
    
    
    10.0
    
    
    
    5,290
    
    
    
    6.9
    
    
    
    18,130
    
    
    
    9.1
    
    
    
    9,436
    
    
    
    7.2Transfer stations
    
    
    9,718
    
    
    
    9.4
    
    
    
    6,266
    
    
    
    8.1
    
    
    
    18,446
    
    
    
    9.3
    
    
    
    11,175
    
    
    
    8.5Material recovery facilities
    
    
    2,835
    
    
    
    2.7
    
    
    
    2,510
    
    
    
    3.3
    
    
    
    5,637
    
    
    
    2.8
    
    
    
    4,813
    
    
    
    3.7Other specialized services
    
    
    977
    
    
    
    1.0
    
    
    
    2,314
    
    
    
    3.0
    
    
    
    1,821
    
    
    
    0.9
    
    
    
    4,241
    
    
    
    3.2103,733
    
    
    
    100.0
    %
    
    
    77,068
    
    
    
    100.0
    %
    
    
    199,170
    
    
    
    100.0
    %
    
    
    130,744
    
    
    
    100.0
    %Intercompany elimination
    
    
    (8,349
    )
    
    
    
    
    
    
    (4,442
    )
    
    
    
    
    
    
    (14,801
    )
    
    
    
    
    
    
    (7,801
    )$
    95,384
    
    
    
    
    
    
    $
    72,626
    
    
    
    
    
    
    $
    184,369
    
    
    
    
    
    
    $
    122,943
 Revenue was $95.4 million and $72.6 million for the three months ended June 30, 2005 and
2004, respectively, an increase of $22.8 million or 31.3%. The increase in revenue for the three
months ended June 30, 2005 for our U.S. operations of $16.0 million or 41.9% was driven by
acquisitions of $8.8 million, increased volume at our landfill sites of $2.0 million, internal
growth of $2.4 million, pricing increases of $2.1 million, of which $0.6 million related to fuel
surcharges, and other increases of $0.7 million. The increase in revenue for our Canadian
operations of $6.7 million or 19.6% was due to increased volume at our landfill sites, primarily
due to special waste projects, of $1.5 million, internal growth of $0.2 million, pricing increases
of $1.8 million, of which $0.9 million related to fuel surcharges, other decreases of $(0.2)
million and the favorable effects of foreign exchange movements of $3.4 million. Revenue was $184.4 million and $122.9 million for the six months ended June 30, 2005 and 2004,
respectively, an increase of $61.5 million or 50.0%. The increase in revenue for the six months
ended June 30, 2005 for our U.S. operations of $48.9 million or 83.9% was driven by acquisitions of
$34.3 million, increased volume at our landfill sites of $3.7 million, internal growth of $4.9
million, pricing increases of $4.0 million, of which $1.4 million related to fuel surcharges, and
other increases of $2.0 million. The increase in revenue for our Canadian operations of $12.6
million or 19.4% was due to increased volume at our landfill sites, primarily due to special waste
projects, of $2.3 million, internal growth of $1.4 million, pricing increases of $3.3 million, of
which $1.4 million related to fuel surcharges, other decreases of $(0.3) million and the favorable
effects of foreign exchange movements of $5.9 million. We
expect that we will not renew our lower margin residential contracts, as such our domestic
collection revenue may decline in future quarters on a sequential basis. 30




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##### Table of Contents



Cost of Operations Cost of operations was $69.3 million and $51.4 million for the three months ended June 30,
2005 and 2004, respectively, an increase of $17.9 million or 34.7%. As a percentage of revenue,
cost of operations was 72.7% and 70.8% for the three months ended June 30, 2005 and 2004,
respectively. The increase in cost of operations for our U.S. operations of $13.6 million or 48.2% was
primarily driven by a full period of cost related to acquisitions made during the second quarter of
2004, the opening of our domestic transfer stations and landfill operations, as well as increased
fuel costs. As a percentage of revenue, cost of operations in our domestic operations was 77.1%
and 73.9% for the three months ended June 30, 2005 and 2004, respectively. The decline in our
domestic gross margin is primarily due to the acquisition of lower margin collection operations.
Our lower margins in the United States, as compared to Canada, are primarily driven by a higher mix
of lower margin collection revenue in the United States. We expect that our domestic operating
margins will improve as we increase internal and external volumes at our new landfill and transfer
station sites and implement operational improvements. The increase in cost of operations for our Canadian operations of $4.3 million or 18.4% was
due to increased fuel costs of $0.6 million or 2.4%, increased labor costs of $0.5 million or 2.1%,
increased volumes for disposal and sub-contractor costs of $0.3 million or 1.3%, increased
equipment, rent, building and other costs of $0.6 million or 2.7% and the unfavorable effects of
foreign exchange movements of $2.3 million or 9.9%. Cost of operations as a percentage of revenue
improved to 66.8% from 67.5% for the three months ended June 30,
2005 as compared to the same period in the previous year. The
increase in gross margin is due
to an increased percentage of higher margin landfill business, primarily due to special waste
projects, offset by increased fuel costs. Cost of operations was $133.8 million and $85.8 million for the six months ended June 30, 2005
and 2004, respectively, an increase of $48.0 million or 55.9%. As a percentage of revenue, cost of
operations was 72.6% and 69.8% for the six months ended June 30, 2005 and 2004, respectively. The increase in cost of operations for our U.S. operations of $39.7 million or 95.0% was
primarily driven by a full period of cost related to acquisitions made during the second quarter of
2004 coupled with the opening of our domestic transfer stations and landfill operations. As a
percentage of revenue, cost of operations in our domestic operations was 76.0% and 71.7% for the
six months ended June 30, 2005 and 2004, respectively. The decline in our domestic gross margin is
primarily due to the acquisition of lower margin collection operations. Our lower margins in the
United States, as compared to Canada, are primarily driven by a higher mix of lower margin
collection revenue in the United States. The increase in cost of operations for our Canadian operations of $8.3 million or 18.8% was
due to increased volumes for disposal and sub-contractor costs of $1.3 million or 2.9%, increased
fuel costs of $0.9 million or 2.0%, increased labor costs of $0.7 million or 1.6%, increased
equipment, rent, building costs and other operating costs of $1.4 million or 3.1% and the
unfavorable effects of foreign exchange movements of $4.0 million or 9.2%. Cost of operations as a
percentage of revenue improved to 67.8% from 68.2% for the six months
ended June 30, 2005 as compared to the same period in the
previous year. The increase in gross margin is due to an increased percentage of higher margin landfill business, offset by
increased fuel costs. Selling, general and administrative expense Selling, general and administrative expense, excluding stock-based compensation expense, was
$14.0 million and $12.4 million for the three months ended June 30, 2005 and 2004, respectively, an
increase of $1.6 million or 13.0%. As a percentage of revenue, selling, general and administrative
expense was 14.7% and 17.1% for the three months ended June 30, 2005 and 2004, respectively. The
overall increase in selling, general and administrative expense is primarily due to acquisitions
completed during the second quarter of 2004. Due to the failure to
meet our internal expectations, we reversed $0.5 million of
excess bonus accrual during the second quarter of 2005,
$0.2 million of which was accrued in the first quarter of 2005. During the second quarter of 2005, we incurred
professional fees related to the re-audit of the Florida Recycling financial statements, litigation
with Waste Management and severance payments of approximately $1.3 million. For the remainder of
2005, we expect to incur additional professional fees relative to the Waste Management litigation,
which will be expensed as services related to these matters are rendered. The unfavorable
effects of foreign exchange movements increased selling, general and administrative expense by $0.4
million. Separately, in June 2005 we announced the closure and 31




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relocation of our corporate offices in Arizona to Florida. As such, we expect we will incur
certain severance and relocation expenses in the third and fourth quarters of 2005. We expect to
continue to review our overhead in order to optimize cost saving opportunities. Selling, general and administrative expense, excluding stock-based compensation expense, was
$29.0 million and $24.1 million for the six months ended June 30, 2005 and 2004, respectively, an
increase of $4.9 million or 20.1%. As a percentage of revenue, selling, general and administrative
expense was 15.7% and 19.6% for the six months ended June 30, 2005 and 2004, respectively. The
overall increase in selling, general and administrative expense in our U.S. operations is primarily
due to acquisitions coupled with increased overhead relative to our domestic expansion and
migration to the U.S. Additionally during the first half of 2005, we incurred professional fees
related to the re-audit of the Florida Recycling financial statements, litigation with Waste
Management and severance payments of approximately $2.1 million. Selling, general and
administrative expenses at our Canadian operations declined primarily due to cost saving
initiatives coupled with overhead costs being shifted to the domestic corporate office. The
unfavorable effects of foreign exchange movements increased selling, general and administrative
expense by $0.8 million. Stock-based compensation expense (benefit) Stock-based compensation expense (benefit) relates to warrants issued to an executive officer
in 2001 for which variable accounting applies and options or warrants issued to non-employees for
services rendered. Stock-based compensation expense (benefit), which is partially based on changes
in our stock price, was $0.6 million and $0.4 million for the three months ended June 30, 2005 and
2004, respectively, and was $1.1 million and $(1.0) million for the six months ended June 30, 2005
and 2004, respectively. Depreciation, depletion and amortization Depreciation, depletion and amortization was $10.6 million and $7.8 million for the three
months ended June 30, 2005 and 2004, respectively, an increase of $2.8 million or 35.7%. As a
percentage of revenue, depreciation, depletion and amortization remained relatively flat at 11.1%
and 10.8% for the three months ended June 30, 2005 and 2004, respectively. The overall increase in
depreciation, depletion and amortization for the three months ended June 30, 2005, as compared to
the same period in the prior year, is primarily due to our domestic acquisitions and the opening of
our landfill and transfer station sites. Landfill depletion rates ranged from C$2.57 to C$17.80 and
C$3.31 to C$15.88 per tonne for our operating Canadian landfills during the three months ended June
30, 2005 and 2004, respectively. Landfill depletion rates ranged from $1.07 to $8.10 and $4.98 to
$7.73 per ton for our operating U.S. landfills during the three months ended June 30, 2005 and
2004, respectively. Depreciation, depletion and amortization was $20.1 million and $13.3 million for the six
months ended June 30, 2005 and 2004, respectively, an increase of $6.8 million or 51.7%. As a
percentage of revenue, depreciation, depletion and amortization remained relatively flat at 10.9%
and 10.8% for the six months ended June 30, 2005 and 2004, respectively. The overall increase in
depreciation, depletion and amortization for the six months ended June 30, 2005, as compared to the
same period in the prior year, is primarily due to our U.S. acquisitions and the opening of our
landfill and transfer station sites. Landfill depletion rates ranged from C$2.57 to C$17.80 and
C$3.31 to C$15.88 per tonne for our operating Canadian landfills during the six months ended June
30, 2005 and 2004, respectively. The change in depletion per tonne
was primarily due to changes
in engineering estimates. Landfill depletion rates ranged from $1.07 to $8.10 and $4.98 to $7.73
per ton for our operating U.S. landfills during the six months ended June 30, 2005 and 2004,
respectively. The change in depletion rate per ton was primarily due to the opening of our
Arizona and Texas landfills as well as changes in engineering
estimates. Foreign exchange loss (gain) and other Foreign exchange (gain) loss and other was nil and $(0.3) million for the three months ended
June 30, 2005 and 2004, respectively, and $(0.2) million and $(0.4) million for the six months
ended June 30, 2005 and 2004, respectively. The foreign exchange loss and other relates primarily
to the re-measuring of U.S. dollar denominated cash balances into Canadian dollars. Other items
primarily relate to gains on sales of equipment. 32




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Interest expense The components of interest expense, including cumulative mandatorily redeemable preferred
stock dividends and amortization of issue costs, for the three and six months ended June 30, 2005
and 2004 are as follows: Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Preferred Stock
and amortization of issue costs
    
    $
    5,114
    
    
    $
    4,290
    
    
    $
    9,956
    
    
    $
    8,309Credit facility and Senior
Subordinated Note interest
    
    
    6,444
    
    
    
    4,863
    
    
    
    12,517
    
    
    
    8,763Amortization of debt issue costs
    
    
    360
    
    
    
    7,406
    
    
    
    705
    
    
    
    9,616Capitalized interest
    
    
    
    
    
    
    (178
    )
    
    
    
    
    
    
    (178
    )Other interest expense
    
    
    369
    
    
    
    175
    
    
    
    776
    
    
    
    381$
    12,287
    
    
    $
    16,556
    
    
    $
    23,954
    
    
    $
    26,891
 Interest expense was $12.3 million and $16.6 million for the three months ended June 30,
2005 and 2004, respectively, a decrease of $4.3 million or 25.8%. Interest expense was $24.0
million and $26.9 million for the six months ended June 30, 2005 and 2004, respectively, a decrease
of $2.9 million or 10.9%. The decrease in interest expense is primarily due to the amortization of
debt issue costs, which included a $6.5 million charge for the three and six months ended June 30,
2004 as a result of the refinancing that occurred in April 2004. The overall decrease in interest
expense is offset by increased interest on our Credit Facilities and senior subordinated notes of
$1.6 million and $3.8 million for the three and six months ended June 30, 2005, respectively. The
increase in the Preferred Stock dividends is primarily due to compounding and accretion. The
weighted average interest rate on secured credit facility borrowings was 7.68% and 6.73% for the
three months ended June 30, 2005 and 2004, respectively and 7.44% and 7.80% for the six months
ended June 30, 2005 and 2004, respectively. As is discussed further in Liquidity and Capital
Resources we have incurred penalties relative to the delay in the registration of our Senior
Subordinated Notes, and will continue to incur penalties until such time as the registration
statement is declared effective. Income tax provision The provision for income taxes was $3.0 million and $2.5 million for the three months ended
June 30, 2005 and 2004, respectively, and $5.3 million and $3.3 million for the six months ended
June 30, 2005 and 2004, respectively. We recognize a provision for income taxes despite our pre-tax
loss due to the tax effect of the non-deductible dividends on our cumulative mandatorily redeemable
preferred stock and provisions for foreign taxes. Additionally, due to the lack of operating
history relative to our U.S. operations, we have provided a valuation allowance for our net
operating loss carry-forwards generated in the U.S. Liquidity and Capital Resources Our principal capital requirements are to fund capital expenditures, and to fund business debt
service and asset acquisitions. Significant sources of liquidity are cash on hand, working capital,
borrowings from our Credit Facilities, and proceeds from debt and/or equity issuances. The
following discussion should be read in conjunction with the Unaudited Condensed Consolidated
Financial Statements and Notes thereto included elsewhere herein. Senior Secured Credit Facilities On April 30, 2004, we entered into new Senior Secured Credit Facilities (the Credit
Facilities) with a syndicate of lenders. The Credit Facilities consist of a five-year revolving
credit facility in the amount of $60.0 million, up to $15.0 million of which is available to our
Canadian operations, and a seven-year term loan facility in the amount of $100.0 million. The
Credit Facilities bear interest based upon a spread over base rate or Eurodollar loans, as defined,
at our option. The Credit Facilities are secured by substantially all of the assets of our U.S.
restricted subsidiaries. Our Canadian restricted subsidiaries guarantee and pledge all of their
assets only in support of the portion of the 33




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##### Table of Contents



revolving credit facility available to them. Additionally, 65% of the common shares of our
first tier foreign subsidiaries are pledged to secure obligations under the Credit Facilities. On October 4, 2004, we entered into an amendment to the Credit Facilities with the
administrative agent for the lenders. The amendment included changes to certain of the financial
and other covenants contained in the Credit Facilities and increased the current interest rates
payable on amounts outstanding by 125 basis points to 450 basis points over Eurodollar loans. Until
we meet certain target leverage ratios, as defined, availability under the amended facility is
reduced to $50.0 million, up to $12.5 million of which is available to our Canadian operations. In
connection with the amendment, we paid a fee of approximately $0.5 million to our lenders. As of
July 28, 2005, $14.3 million of capacity remained under the facility. Currently, we are in
compliance with the financial covenants, as amended, and we expect to continue to be in compliance
in future periods. The following table sets forth our financial covenant levels for the current and each of the
next four quarters: Maximum ConsolidatedMaximum Consolidated
    
    
    Senior
    
    
    Minimum ConsolidatedFiscal Quarter
    
    Leverage Ratio
    
    
    Secured Leverage Ratio
    
    
    Interest Coverage RatioFQ2 2005
    
    
    6.50:1.00
    
    
    
    2.75:1.00
    
    
    
    1.75:1.00FQ3 2005
    
    
    5.75:1.00
    
    
    
    2.50:1.00
    
    
    
    1.75:1.00FQ4 2005
    
    
    5.25:1.00
    
    
    
    2.50:1.00
    
    
    
    2.00:1.00FQ1 2006
    
    
    5.25:1.00
    
    
    
    2.25:1.00
    
    
    
    2.00:1.00FQ2 2006
    
    
    5.25:1.00
    
    
    
    2.25:1.00
    
    
    
    2.00:1.00
 Senior Subordinated Notes On April 30, 2004, we completed a private offering of 9 1/2% Senior Subordinated Notes due 2014
for gross proceeds of $160.0 million. The Subordinated Notes mature on April 15, 2014. Interest on
the Subordinated Notes is payable semiannually on October 15 and April 15. We also entered into a Registration Rights Agreement with the initial purchaser of the
Subordinated Notes in which we agreed to (i) file a registration statement with respect to the
Subordinated Notes within 120 days of the closing date of the issuance of the notes (August 28,
2004), pursuant to which we will offer to exchange the Subordinated Notes for registered notes with
terms identical to the Subordinated Notes; (ii) have such registration statement declared effective
within 210 days of the issuance date; (iii) maintain the effectiveness of such registration
statement for minimum periods specified in the agreement; and (iv) file a shelf registration
statement in the circumstances and within the time periods specified in the agreement. As we have
yet to comply with (i), (ii) and (iii) above, we were required to pay liquidated damages, in cash,
in the amount equal to $0.05 per week per $1,000 in principal amount of the unregistered
Subordinated Notes, for each week that the default continued for the first 90-days following
default (approximately $8,000 per week). The amount of liquidated damages will increase by an
additional $0.05 per week per $1,000 in principal amount of unregistered Subordinated Notes for
each subsequent 90-day period until all defaults have been cured, to a maximum of $0.50 per week
per $1,000 in principal amount of unregistered Subordinated Notes outstanding. These liquidated
damages are payable at the same time as interest payments due under the Subordinated Notes.
Currently, our interest penalty approximates $32,000 per week until August 24, 2005, when it will
increase to $40,000 per week. Equity Placement As previously discussed, during the first quarter of 2005, we issued 2,640,845 shares of our
common stock and 264,085 common stock purchase warrants for net proceeds of approximately $6.8
million. In the second quarter of 2005, a warrant holder exercised 146,250 warrants for
proceeds of approximately $0.5 million. 34




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##### Table of Contents



Cumulative Mandatory Redeemable Preferred Stock In May 2003, we issued 55,000 shares of redeemable Preferred Stock (the Preferred Stock) to
Kelso Investment Associates VI, L.P. and KEP VI, LLC (collectively Kelso), pursuant to the terms
of an agreement dated as of May 6, 2003, as amended in February and June 2004 at a price of $1,000
per share. We also issued to Kelso warrants to purchase 7,150,000 shares of our common stock for
$3.00 per share. The warrants are exercisable at any time until May 6, 2010. The issuance of the
Preferred Stock resulted in proceeds of approximately $49.5 million, net of fees of approximately
$5.5 million. The shares of Preferred Stock are non-voting. The Preferred Stock entitles the holders to cash dividends of 17.75% per annum compounding and
accruing quarterly in arrears, and to a liquidation preference of $1,000 per share, adjusted for
any stock dividend, stock split, reclassification, recapitalization, consolidation or similar event
affecting the Preferred Stock, plus the amount of any accrued but
unpaid dividends on such shares as
of any date of determination. The liquidation preference approximated $80.0 million as of June 30,
2005. Migration Transaction As part of our business strategy to expand into the United States, we entered into a migration
transaction that became effective July 31, 2004. Under the migration transaction, our corporate
structure was reorganized so that Waste Services, Inc., a Delaware company, became the ultimate
parent company of our corporate group. Prior to the migration transaction, we were a subsidiary of
Capital. After the migration transaction, Capital, now Waste Services (CA), became our subsidiary. The migration transaction occurred by way of a plan of arrangement under the Business
Corporations Act (Ontario) and consisted primarily of: (1) the exchange of 87,657,035 common shares
of Capital for 87,657,035 shares our of common stock and (2) the conversion of the remaining
9,229,676 common shares of Capital held by non-US residents who elected to receive exchangeable
shares into 9,229,676 exchangeable shares of Waste Services (CA). The transaction was approved by
the Ontario Superior Court of Justice on July 30, 2004 and by our shareholders at a special meeting
held on July 27, 2004. Surety Bonds, Letters of Credit and Insurance Municipal solid waste services contracts and permits and licenses to operate transfer
stations, landfills and recycling facilities may require performance or surety bonds, letters of
credit or other means of financial assurance to secure contractual performance. As of June 30,
2005, we had provided customers and various regulatory authorities with such bonds and letters of
credit amounting to approximately $73.0 million to collateralize our obligations. The majority of
these obligations are renewed on an annual basis. Our U.S.-based automobile, general liability and workers compensation insurance coverage is
subject to certain deductible limits. We retain up to $0.5 million and $0.25 million of risk per
claim, plus claims handling expense under our workers compensation and our auto and general
liability insurance programs, respectively. Claims in excess of such deductible levels are fully
insured subject to our policy limits. However, we have a limited claims history for our U.S.
operations and it is reasonably possible that recorded reserves may not be adequate to cover future
payments of claims. Adjustments, if any, to our reserves will be reflected in the period in which
the adjustments are known. In the second quarter of June 2005, we received an insurance premium
refund of approximately $0.4 million which served to reduce our cost of operations for the quarter.
As of June 30, 2005 and included in the $73.0 million of bonds and letters of credit discussed
previously, we have posted a letter of credit with our U.S. insurer of approximately $8.4 million
to cover the liability for losses within the deductible limit. Cash Flows The following discussion relates to the major components of the changes in cash flows for the
six months ended June 30, 2005 and 2004. 35




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Cash Flows from Operating Activities Cash provided by operating activities was $10.1 million and $8.1 million for the six months
ended June 30, 2005 and 2004, respectively. The increase in cash provided by operating activities
is primarily due to cash generated from our operations as well as improvements in working capital. Cash Flows used in Investing Activities Cash used in investing activities was $20.4 million and $174.6 million for the six months
ended June 30, 2005 and 2004, respectively. The decrease in cash used in investing activities is
primarily due to the various business acquisitions we completed during the first half of 2004
coupled with lower capital expenditures as compared to the same period in the prior year. We intend
to finance capital expenditures and business acquisitions through operating cash flow, borrowings
under our Credit Facilities, subject to the limitations on our investing activities set out in the
Credit Facilities Agreement, and the issuance of additional debt and/or equity securities. We
expect our capital expenditures to range from $37.0 to $38.0 million for all of 2005. Cash used in
deposits for business acquisitions primarily relates to ongoing negotiations with Lucien Rémillard,
one of our directors, concerning the potential acquisition of the solid waste collection
and disposal business assets owned by a company controlled by Mr. Rémillard in Quebec, Canada. In
connection with these negotiations, we have reimbursed Mr Rémillards company for services provided
by third parties in connection with preparing audited financial statements of the businesses to be
acquired and with ongoing efforts to expand the capacity of a solid waste landfill. Cash Flows from Financing Activities Cash provided by financing activities was $6.8 million and $148.6 million for the six months
ended June 30, 2005 and 2004, respectively. The decrease in cash flows from financing activities is
due to our debt offering and private placement financing transaction
that were completed during the
second quarter of 2004, offset by the proceeds from the sale of our common stock and common stock
purchase warrants. In the first half of 2004, we received $22.6 million from the release of
restricted cash for the acquisition of certain Allied assets and the release of collateral for
letters of credit. Off-Balance Sheet Financing We have no off-balance sheet debt or similar obligations, other than our letters of credit and
performance and surety bonds discussed previously, which are not debt. We have no transactions or
obligations with related parties that are not disclosed, consolidated into or reflected in our
reported results of operations or financial position. We do not guarantee any third party debt. We
have entered into a put or pay disposal agreement with RCI Environnement Inc., Centres de
Transbordement et de Valorisation Nord Sud Inc., RCM Environnement Inc. (collectively the RCI
Companies) and Intersan Inc. pursuant to which we have posted a letter of credit for C$4.0 million
to secure our obligations and those of the RCI Companies to Intersan Inc. Concurrently with the put
or pay disposal agreement with the RCI Companies, we entered into a three year agreement with Waste
Management of Canada Corporation (formerly Canadian Waste Services Inc.) to allow us to deliver
non-hazardous solid waste to their landfill in Michigan. Details of these agreement are further
described in our annual financial statements for the year ended December 31, 2004, as filed on Form
10-K. 36




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##### Table of Contents



Landfill Sites The following table summarizes the changes in our operating landfill capacity for the three
months ended June 30, 2005 (in thousands of cubic yards): Balance,
    
    
    Changes in
    
    
    
    
    
    
    Balance,Beginning
    
    
    Engineering
    
    
    Airspace
    
    
    Endof Period
    
    
    Estimates
    
    
    Consumed
    
    
    of PeriodUnited StatesPermitted capacity
    
    
    268,883
    
    
    
    (414
    )
    
    
    (771
    )
    
    
    267,698Probable expansion capacity
    
    
    18,300
    
    
    
    
    
    
    
    
    
    
    
    18,300Total available airspace
    
    
    287,183
    
    
    
    (414
    )
    
    
    (771
    )
    
    
    285,998Number of sites
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4CanadaPermitted capacity
    
    
    11,642
    
    
    
    1,115
    
    
    
    (403
    )
    
    
    12,354Total available airspace
    
    
    11,642
    
    
    
    1,115
    
    
    
    (403
    )
    
    
    12,354Number of sites
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3TotalPermitted capacity
    
    
    280,525
    
    
    
    701
    
    
    
    (1,174
    )
    
    
    280,052Probable expansion capacity
    
    
    18,300
    
    
    
    
    
    
    
    
    
    
    
    18,300Total available airspace
    
    
    298,825
    
    
    
    701
    
    
    
    (1,174
    )
    
    
    298,352Number of sites
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7
 Trend Information Seasonality We expect the results of our Canadian operations to vary seasonally, with revenue typically
lowest in the first quarter of the year, higher in the second and third quarters, and lower in the
fourth quarter than in the third quarter. The seasonality is attributable to a number of factors.
First, less solid waste is generated during the late fall, winter and early spring because of
decreased construction and demolition activity. Second, certain operating costs are higher in the
winter months because winter weather conditions slow waste collection activities, resulting in
higher labor costs, and rain and snow increase the weight of collected waste, resulting in higher
disposal costs, which are calculated on a per ton basis. Also, during the summer months, there are
more tourists and part-time residents in some of our service areas, resulting in more residential
and commercial collection. Consequently, we expect operating income to be generally lower during
the winter. The effect of seasonality on our results of operations from our U.S. operations, which
are located in warmer climates than our Canadian operations, is less significant than that of our
Canadian operations. New Accounting Pronouncements Refer to the Notes to the Unaudited Condensed Consolidated Financial Statements for a
discussion of new accounting pronouncements. Disclosure Regarding Forward-Looking Statements This Form 10-Q contains certain forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, or the Exchange Act. Some of these forward-looking
statements include forward-looking phrases such as anticipates, believes, could, estimates,
expects, foresees, intends, may, should or will continue, or similar expressions or the
negatives thereof or other variations on these expressions, or similar terminology, or discussions
of strategy, plans or intentions. These statements also include descriptions in connection with,
among other things: 37




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
    
    our anticipated revenues, capital expenditures, future cash flows and financing
requirements, and those of companies or assets we acquire;
    
    the implementation of our business strategy;
    
    descriptions of the expected effects of our competitive strategies; and
    
    the impact of actions taken by our competitors and other third parties,
including courts and other governmental authorities. Such statements reflect our current views regarding future events and are subject to certain
risks, uncertainties and assumptions. Many factors could cause the actual results, performance or
achievements to be materially different from any future results, performance or achievements that
forward-looking statements may express or imply, including, among others:  
    
    significant restrictive covenants in our various credit facilities;
    
    changes in regulations affecting our business and costs of compliance;
    
    revocation of existing permits and licenses or the refusal to renew or grant
new permits and licenses, which are required to enable us to operate our business or
implement our growth strategy;
    
    our ability to successfully implement our corporate strategy and integrate any acquisitions we undertake;
    
    our ability to negotiate renewals of existing service agreements;
    
    costs and risks associated with litigation;
    
    changes in general business and economic conditions, changes in exchange rates
and in the financial markets;
    
    changes in accounting standards or pronouncements; and
    
    construction, equipment delivery or permitting delays for our transfer stations or landfills. Some of these factors are discussed in more detail in our annual report on Form 10-K, as filed
with the Securities and Exchange Commission for the year ended December 31, 2004, included under
Item 1. of the annual report, Business  Risk Factors. If one or more of these risks or
uncertainties affects future events and circumstances, or if underlying assumptions do not
materialize, actual results may vary materially from those described in this Form 10-Q and our
annual report as anticipated, believed, estimated or expected, and this could have a material
adverse effect on our business, financial condition and the results of our operations. Further, any
forward-looking statement speaks only as of the date on which it is made, and except as required by
law we undertake no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which it is made or to reflect the occurrence of anticipated or
unanticipated events or circumstances. 
 Item 3.Quantitative and Qualitative Disclosures About Market Risk A portion of our operations are domiciled in Canada; as such, we translate the results of our
operations and financial condition of our Canadian operations into U.S. dollars. Therefore, our
reported results of operations and financial condition are subject to changes in the exchange
relationship between the two currencies. For example, as the relationship of the Canadian dollar
strengthens against the U.S. dollar our revenue is favorably affected and conversely our expenses
are unfavorably affected. Assets and liabilities of Canadian operations have been translated from
Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet
date, and revenue and expenses of Canadian operations have been translated from Canadian dollars
into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and
losses on translation of the Canadian operations into U.S. dollars are reported as a separate
component of shareholders equity and are included in comprehensive income (loss). Separately,
monetary assets and liabilities denominated in U.S. dollars held by our Canadian 38




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operation are
re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The
effects of re-measurement are reported currently as a component of net income (loss). Currently, we
do not hedge our exposure to changes in foreign exchange rates. For the three and six months ended
June 30, 2005 and 2004, we estimate that a 5.0% increase or decrease in the relationship of the
Canadian dollar to the U.S. dollar would increase or decrease operating profit from our Canadian
operations by less than $0.2 million and $0.1 million, respectively. As of June 30, 2005, we were exposed to variable interest rates under our Credit Facilities,
as amended. The interest rates payable on our revolving and term facilities are based on a spread
over base rate or Eurodollar loans as defined. A 25 basis point increase in base interest rates would
increase cash interest expense by approximately $0.2 million for the six months ended June 30,
2005. 
 Item 4.Controls and Procedures Disclosure Controls and Procedures/Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to ensure that information required to
be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported accurately within the time periods specified in the Securities and Exchange
Commissions rules and forms. As of the end of the period covered by this report, an
evaluation was performed under the supervision and with the participation of management, including
the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the
design and operation of our disclosure controls and procedures (pursuant to Exchange Act Rule
13a-15). Based upon this evaluation, the CEO and CFO concluded that our disclosure controls and
procedures are effective. The conclusions of the CEO and CFO from this evaluation were communicated
to the Audit Committee. Changes in Internal Controls Over Financial Reporting There were no changes in our internal control over financial reporting that occurred during
our last fiscal quarter that would have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. 
 PART II. OTHER INFORMATION 
 Item 1.Legal Proceedings Information regarding our legal proceedings may be found under the Legal Proceedings section
of Note 9, Commitments and Contingencies to our Unaudited Condensed Consolidated Financial
Statements contained herein. 
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds None 
 Item 3.Defaults upon Senior Securities None 
 Item 4.Submission of Matters to a Vote of Security Holders None 
 Item 5.Other Information None 39




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Item 6.Exhibits Exhibit 31.1  Section 302 Certification of David Sutherland  Yoest, Chief Executive Officer Exhibit 31.2  Section 302 Certification of Mark A. Pytosh, Chief Financial Officer Exhibit 32.1  Section 1350 Certification of the Chief Executive Officer and Chief Financial
Officer 40




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Waste Services, Inc. has
duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 2, 2005 By:
    
    /s/ DAVID SUTHERLAND-YOESTDavid Sutherland-YoestChairman of the Board,Chief Executive Officer, and DirectorBy:
    
    /s/ MARK A. PYTOSHMark A. PytoshExecutive Vice President andChief Financial Officer
 41




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EXHIBIT INDEX Exhibit No.
    
    
    
    DescriptionExhibit 31.1
    
    
    
    Section 302 Certification of David Sutherland-Yoest, Chief Executive OfficerExhibit 31.2
    
    
    
    Section 302 Certification of Mark A. Pytosh, Chief Financial OfficerExhibit 32.1
    
    
    
    Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer